Wall Street dials back U.S. sales outlook as Trump bump fades

on Jun9

Average new-vehicle discounts in the U.S. have been setting monthly records year over year, but they’ve been declining sequentially in recent months.

So much for the Trump bump to the U.S. auto market.

Analysts are lowering estimates for 2017 vehicle sales after five months of industrywide deliveries declining from a year earlier. Among the reasons: Carmakers are showing more restraint on discounts than expected and gridlock in Washington reduces the likelihood of a second-half surge.

More than half of the analysts surveyed by Bloomberg News have reduced their full-year projections this spring, dialing the consensus back to 17.2 million light vehicles. The industry set a record with 17.55 million cars and light trucks sold last year, aided by a jump in shipments to rental-car companies and other fleet buyers.

The auto industry has been a fixation for President Donald Trump, who’s said carmakers will build vehicles in the U.S. again because of him. While he’s promised the industry less regulation and lower taxes, the struggle the Republican-led White House and Congress have had with health-care reform has cast doubt on the Trump administration’s ability to follow through on measures that would boost car demand.

“It’s not clear what’s going to happen through the rest of the year and with the political situation,” said Michelle Krebs, senior analyst for Autotrader, which has maintained an estimate range of 16.8 million to 17.3 million. “It’s looking like it’s going to get more difficult to get some of these things through.”

Anticipation for tax cuts, infrastructure spending and other policies that would give automakers a lift contributed to analysts raising their sales estimates to 17.4 million as of the end of January, from an average of 17.2 million in November. That optimism has been dashed in part by how consumed Washington has been with investigations into Russia’s efforts to interfere in the presidential election.

Throw in the flood of used cars hitting the market from the boom in lease business three years ago, as well as questions about the pace of interest-rate increases, and it’s all leaving automakers a bit antsy, said Jeff Schuster, senior vice president of forecasting at LMC Automotive.

Industry jitters

“That’s driving a lot of the uncertainty and frankly the jitters across the industry, because this is the first year and the first time that we’re pulling back on demand since the recession,” Schuster said. “That’s put a little fear into the industry.”

LMC, which has trimmed its 2017 sales estimate to 17.2 million, from 17.6 million in late January, had suspected manufacturers would keep ratcheting up incentives this year to keep sales well above the 17 million pace, Schuster said. While the average discounts have been setting monthly records, they’ve actually been declining sequentially.

“We’ve been a bit surprised by the discipline,” Schuster said. “Even though they’re high, they’re not really continuing to escalate them.”

Sub-17 rate

The annualized pace of U.S. auto sales has slumped below 17 million for three straight months for the first time since 2014, spurring some of the cuts in forecasts. The new average projection would still rank as the fourth-best year on record.

Joseph Spak at RBC Capital Markets cut his estimate to 17.1 million from 17.35 last week, saying in a note that retail sales this year have appeared “about flat,” with the reductions coming in the less-profitable fleet segments. That would indicate less pressure on earnings than if the decline were coming from individual consumers.

Spak applauded the benefits of keeping incentives in check, but wrote that “it also supports our view that demand settles at a lower level.”

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