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Auto Sales Record Streak May End In 2016

Jul 21, 2016

After seven consecutive years of sales growth, a newly released report from AlixPartners, a New York City-based consulting firm, forecasts U.S. light vehicle sales of 17.5 million in 2017—down slightly from this year’s 17.8 million forecast. The report also looks ahead and expects U.S. sales to bottom out at 15.2 million vehicles in 2019, followed by a gradual upturn to 16.8 million by 2022.

There are many causes the company sites for the forthcoming downturn in sales, including: soft used car prices, a slow-growth economy and modestly higher interest rates. Other factors include:

•Incentive spending per vehicle was up 14% early this year, as manufacturers attempt to boost small vehicle sales.•The delinquency rate on subprime loans has increased to 4.5% this year from less than 3% in 2011.•Leases rose to 31% of new car transactions in the first quarter of this year, up from 27% in the first quarter of 2015. A flood of off-lease vehicles will drive down used car prices and dampen demand for new cars.•More than 40% of non-luxury cars that are traded in will have negative equity this year, making it tougher for buyers to finance new vehicles.

The dip in sales is not expected to be dramatic, according to AlixPartners, because the U.S. economy is still expanding, housing starts continue to rise, and gasoline is still cheap. Those factors add up to a fairly healthy U.S. auto market over the next five years.