U.S. light trucks are expected to account for two-thirds of a 16.7 million new vehicle sales forecast for 2018, according to Senior Economist Patrick Manzi of the National Automobile Dealers Association (NADA).
Manzi kicked off the first day of the NADA Show 2018, located at the Las Vegas Convention Centre, with a review of the current state of U.S. auto retailing — touching on topics like Gross Domestic Product (GDP), job growth, unemployment, federal funds and new vehicle sales.
In February, when U.S light-vehicle sales dropped by about 20,000 units year-over-year, light trucks (light pickups, crossovers and SUVs) accounted for nearly 68 per cent of new vehicles sold. Manzi predicts the majority of new vehicle buyers will continue to focus on this market. “We don’t expect that trend to stop anytime soon, especially if gas prices stay in the range that we are expecting, which is between $2.40 and $2.70 cents a gallon.”
He also expects average transaction prices to continue to increase throughout the year due to consumer preferences for light trucks/vehicles with “more high-end advanced safety features.”
Moving forward, as new vehicle sales begin to decline, Manzi says dealers will start focusing on their used car business, along with their service and parts business. “Those are the keys to being successful going forward,” said Manzi.
According to Cox Automotive, approx. 3.9 million lease returns are anticipated for 2018, representing an increase of 8 per cent from 2017. These off-lease volumes will pave the way for an increase in the certified pre-owned (CPO) used market, possibly making 2018 a record year for CPO sales. That’s because these sales “provide customers with the peace of mind of a factory warranty and dealership inspection process.”
Manzi also provided a general overview of the rest of U.S. auto retailing, saying the economy is strong and that GDP growth is expected to hit 2.7 per cent for the year. The labour market is showing signs of strong year-over-year job gain, with 313,000 new jobs added in February and unemployment remaining steady at around 4.1 per cent.
“We expect this trend to continue throughout 2018 — maybe dip into the high 3 per cent range by the end of the year or the start of 2019,” says Manzi. “Historically when you an unemployment this low, you would expect wage growth to begin accelerating, but unfortunately we haven’t seen that. We saw one little blip in January, but that fell off in February,” he added.
Finally, the federal funds rate increased slightly this week and is expected to rise two or three rates more though the year, bringing the overall rate to 2.1 or 2.2 per cent. The following year should see two or three more rate rises totalling another 60 or so basis points, according to Manzi. The result is likely to impact “the marginal new vehicle buyer with poor credit,” which may prevent them from qualifying for a new car loan much like they would have a few years ago. However, “if you have good credit and a high income, you’ll be just fine,” said Manzi.
The NADA Show 2018 runs from March 23-25 at the Las Vegas Convention Centre in Nevada.
