The gloomy storm clouds hovering over the US automobile market will not dissipate in the next twelve months. Based on expectations for demand-side fundamentals, CSM Worldwide is forecasting light-vehicle sales to descend to a 10-year low of 15.8 million units in 2008.
"The market will linger in a cyclical contraction phase," said Joseph Barker, senior manager of North American Sales Forecasting. "The downturn was triggered by diminished consumer purchasing power, depleted pent-up demand, and structural changes at Detroit automakers."
Rising adjustable-rate mortgage expenditures, falling home values and surging energy costs (including gasoline) are draining discretionary income and straining the consumer psyche. In a climate of rising prices, inflation is a threat that could be even more taxing on consumers next year. Furthermore, CSM is concerned that the negative forces rattling the financial markets on Wall Street could spread to Main Street, forcing consumers to curb spending.
Pent-up demand was depleted in 2002-05 and has been slow to rebuild. Zero-percent financing and massive rebates in the four-year period artificially propped-up sales by pulling forward demand. Replenishing the demand pool has been complicated too by the fall-off of vehicle scrappage and leasing. Despite 50 new model launches this year and another 50 in the 2008 pipeline, auto companies will be especially challenged with luring car owners who are locked in 0 percent auto loans back into dealer showrooms.
Structural changes are downsizing Detroit automakers in every way imaginable, including sales expectations. "Old-Detroit thinking is finally collapsing to a new era that places emphasis on smaller, more profitable quantities and resuscitating ailing brands," said Barker. There will be further reductions in fleet transactions, measured use of incentives and less importance placed on market share. The Detroit 3 have built long-range business plans around richer average transaction prices, stronger residual values and wealthier brand equity. This fundamental change in business strategy will shrink sales levels in the near term, but will sculpt each into leaner, healthier auto companies in the long-term.
At the conclusion of this year, combined General Motors, Ford and Chrysler sales will have fallen by 2.1 million vehicles over the past 5 years. Detroit automakers are forecast to sell another 500,000 fewer vehicles next year, while Asian companies expand by 100,000 units to capture 41.5 percent of the market.
In response to weaker U.S. market conditions, import trends and expected inventory management adjustments, CSM also is forecasting North American production to decline to 14.4 million units in 2008, the lowest level in nearly 15 years.
"Though most market forces will be battered next year, our sales outlook is not as pessimistic as the consensus," said Barker. "The unemployment rate is low, additional interest-rate cuts are likely, and GDP growth continues to exceed expectations. We also cannot underestimate the resiliency of consumers."
Signs of improved market fundamentals are expected in 4Q2008. CSM’s long range projections call for a moderate sales recovery in 2009 followed by an accelerated expansion period early next decade.
In the face of erratic market conditions, CSM again predicted market demand with pinpoint accuracy in 2007. With one month remaining, sales are on pace to come within a mere 0.05 percent of CSM’s start-of-the-year industry forecast of 16.25 million units.