ABA Banking Journal - August 2014 - (Page 8)
BY MEKAEL TESHOME
Auto outlook mostly upbeat
AUTO DEMAND LIKELY TO KEEP PACE WITH POPULATION
strong year ahead, with vehicles and parts pro270
duction on track to rise at a double-digit pace in
the third quarter. Directly employing more than
840,000 people, and perhaps just as many peo250
Vehicle registrations, millions
ple indirectly, the auto sector is a critical part of
Population over age 16, millions
U.S. manufacturing. With the traditional summer
factory shutdown season upon us, the industry
appears to be on the leading edge of a positive
next few years.
Auto industry economists expect vehicle sales
of 16 million units in 2014 and 16.4 million units
in 2015, or growth of 3.3% and 2.5%, respec170
tively. Key cyclical boosts to auto sales include an
improving labor market, higher stock prices, higher home prices, low interest rates, and stronger
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
household balance sheets. The positive outlook is
Sources: Bureau of Transportation Statistics; Census Bureau
reinforced by exceptionally strong data recently;
at 17 million units at a seasonally adjusted annual
rate, vehicle sales in June were the strongest since 2006.
years, it is unlikely that number will
Long-term demand drivers are favorable to the outlook for auto sales. The
get all the way back to 40%.
ratio of auto registrations per driving age population has come down somewhat
Finally, the housing recovery's abilfrom the boom years, as millennials delayed acquiring licenses or purchasing
ity to lift auto sales may have lost
cars. Yet there is no indication that they will forgo vehicle purchases entirely.
steam. Marginal increases in auto
Continued economic recovery is lifting the ratio of registrations to driving age
sales are positively correlated with
population. Even though long-term population growth is expected to slow to
housing starts, but this effect dimin0.5% per year-from about 1% in the previous 10 years-and given that the regishes above 1.1 million units. Even
istrations-to-population ratio has increased over the years, the long-term outlook
though homebuilding is currently
for auto sales remains upbeat.
below this threshold, it is expected
Auto dealers believe that lost sales during the recession and weak recovery
to increase only slowly and will likewere, for the most part, delayed, not gone; hence they anticipate a stronger
ly remain under 1.1 million units
bounce-back from the unleashing of pent-up demand. Assuming the trend rate
until 2016. As a result, incremental
of new vehicle sales is about 16 million units annually, and because sales averimprovements in housing construcaged about 13.3 million units between 2007 and 2013, sales of some 16.5 miltion in the near term are unlikely to
lion were delayed-much of that waiting to happen as jobs and income prospects
be followed by significant improveimprove for consumers.
ments in auto sales.
This optimism is tempered among producers. Although the age of the U.S.
vehicle fleet is at a record high of 11.4 years, quality and durability improveMekael Teshome is an economist
ments over the years have been causing it to rise secularly. This suggests that a
at The PNC Financial Services
portion of the lost sales was likely truly lost. Typically, about 40% of vehicles on
Group, Pittsburgh, Pa. This article
the road are of prime replacement age or 10 to 15 years old. Currently, about
is a condensation of a longer report. Find it at
50% are of prime replacement age. Because of tighter credit than in the boom
ABA BANKING JOURNAL
CAR KEY PHOTO: SHUTTERSTOCK.COM
The U.S. automotive industry is gearing up for a
Table of Contents for the Digital Edition of ABA Banking Journal - August 2014
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ABA Banking Journal - August 2014