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What is the U.S. Auto Industry Outlook for 2013?

January 29, 2013

On Thursday, January 24, 2013, the Detroit Association for Business Economics (DABE) held its annual Bob Fish Memorial Automotive Outlook luncheon. The speakers for this event were Joseph Barker, from the Industry Analysis Group of General Motors (GM), and Mike Jackson, senior manager of North American production forecasting at IHS Automotive. Barker discussed the U.S. automotive sales outlook for 2013 and beyond, while Jackson concentrated on the North American production forecast. Both of these analysts are strong industry experts, excellent presenters, and former colleagues of Bob Fish—a former president of the DABE and one of the group’s founders.

Light vehicle sales for 2012 started better than expected because of pent-up demand for commercial fleet vehicles and the pushing of product by Japanese original equipment manufacturers (OEMs) to meet their fiscal year targets, said Barker. Vehicle sales slowed slightly in the third quarter once the pent-up demand for commercial fleet vehicles was met. Additionally, it was estimated that the effects of Hurricane Sandy lowered sales in October by as many as 300,000 units. However, seasonally adjusted annual rates of auto sales were 15.5 million and 15.3 million units for November and December, respectively; thus, the auto sales rate in the fourth quarter of 2012 reached its strongest level since 2007 and helped pushed calendar year light vehicle sales for 2012 to 14.4 million units.

Barker said that the mix of light vehicle sales in 2012 shifted more to compact and mid-size cars when compared with the mix in 2011, thanks partially to the sales of outgoing models at discounted rates and sales of replacement models that were particularly attractive to buyers. Loyalty to luxury vehicles showed signs of decreasing, with fewer luxury car owners returning to the luxury market. Also, smaller percentages of non-luxury vehicle owners are trading up to the luxury market. Toyota and Honda saw improvements in their respective market shares, which had been hurt from the disruption in parts and supplies caused by the 2011 Japanese earthquake and tsunami; however, their market shares still haven’t recovered to pre-disaster levels.

On the pricing front, the major manufacturers saw a reversal from downward price pressures caused by overcapacity in the industry, said Barker. Average transaction prices were similar or slightly higher for the largest seven OEMs (Chrysler, Ford, GM, Toyota, Honda, Nissan, and Hyundai). In addition, average incentives as a percentage of average transaction prices for the largest seven OEMs have converged since the end of the recession indicating a less discernible difference in product quality between the manufacturers. However, the incentives for the Detroit Three OEMs (Chrysler, Ford, and GM) are still slightly above the industrial average. Even with this firming of prices, falling interest rates on loans and better leasing conditions have pushed Comerica Bank’s Auto Affordability Index to one of its lowest levels on record. Comerica’s index calculates the number of weeks of median family income needed to buy a new car; the index reported this value to be just 23.1 weeks for the fourth quarter of 2012 (compared 24.2 weeks for the fourth quarter of 2011).

Improved affordability, along with the fact that the average age of the current fleet of vehicles in operation is at a record high, has helped increase the percentage of consumers intending to buy a new vehicle within the next six months, according to Barker. Although Barker said he expects there will be a deceleration of sales growth, annual sales for 2013 should rise to between 15.0 million and 15.5 million units. This outlook remains slightly bearish because of the following factors: the upcoming fiscal policy debates, the anticipated decline in the rate of real gross domestic product (GDP) growth that is slightly below the long-term historical rate, and continued slow growth in new home construction. But auto sales are expected to keep increasing until reaching 16.6 million units in 2016.

According to Jackson, the post-recession restructuring of the industry will help narrow the gap between North American sales and production going forward meaning that more of the vehicles sold North America will also be built in North America. Long-term output levels will exceed pre-restructuring levels because of increased exports, OEM expansion, and more localization of production. One of the major concerns about the growth in production plans is whether the supply chain can handle higher production levels with 20% of existing plants already running three shifts and with significant amounts of production capacity having been eliminated (by shuttering plants) over the past few years.

Going forward, “Asian Four” OEM (Toyota, Honda, Nissan, and Hyundai) production will be at least equal to GM and Ford production combined, whereas in previous years, GM production alone was double that of Asian Four OEM production, said Jackson. Jackson also noted that the Asian Four manufacturers will increase their North American production of light vehicles for sale here and abroad because North America is viewed as a safer market with lower currency risk. North America will lead in the production of high-margin crossover utility vehicles. And there will be many new products launched in the coming years. Currently, there are 45 new product launches planned for 2014 and many more in the pipeline. Jackson expressed measured optimism about the supply chain being up to the task ahead.

According to Jackson, the North American light vehicle production forecast for 2013 is 15.9 million units—which is just 3.2% higher than the level of 2012 but 84.9% higher than the recessionary low reached in 2009 of just 8.6 million units. Production of light vehicles in North America is expected to continue to rise, reaching 17.0 million units by 2015, noted Jackson.

For more detailed information and a copy of both presentations, please use the links below:
Joseph Barker’s Presentation: U.S. Light Vehicle Sales Outlook 2013
Mike Jackson’s Presentation: N.A. Light Vehicle Production Outlook 2013

The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.


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