Hot Auto Market Expected to Cool in 2014

photo of automobilesAfter four consecutive years of better-than-expected sales gains, automakers are poised for steady but slower growth in 2014, with tougher price competition expected as production catches up with demand.

December sales were essentially flat from a year earlier as year-end discounts and deals didn?t have quite the kick some had expected. Still, Americans bought or leased 15.6 million new cars and trucks for 2013, the best year since 2007, when the total was 16.1 million.

Alec Gutierrez, senior analyst for Kelley Blue Book, said he expects U.S. sales will increase to 16.3 million this year.

But with manufacturers cranking up production and launching more new models than they have in recent years, the discipline that has bolstered prices and reduced rebates will be tested.

?We are going to be watching the incentive wars,? said Eric Lyman, vice president of ALG, a company that measures the resale value of cars after leases.

Gutierrez said sales are approaching a natural level of demand for a country with 210 million licensed drivers, especially since people are traveling fewer miles than they did five or 10 years ago. Add to that increasingly competitive vehicles from all manufacturers and you have a buyer?s market, particularly in popular and crowded segments like midsize cars.

Collectively, General Motors, Ford and Chrysler finished the year with 45.3 percent of U.S. sales, up 0.5 percent from 2012, on the strength of pickup truck sales. Their collective share of the passenger car market edged up to 31.5 percent from 30.8 percent in 2012. Toyota, Honda and Nissan captured 36.6 percent of the car market, up from 36.3 percent in 2012.

Automakers plan to introduce 37 new models in North America next year, the most since 2006, IHS Automotive said last month. They plan to make about 16.8 million vehicles, up from 16.2 million in 2013.

?We think a lot of the pent-up demand for new cars is winding down. ? A lot of those consumers have already gone out and purchased that replacement vehicle,? Gutierrez said.

Still, the industry is far healthier than it was five years ago. Each of the Detroit Three automakers has a better lineup than they did before the recession. So do their Asian and European rivals.

GM executives said Friday they will not cave into the pressure to raise incentives.

?Competitors are still going to be really aggressive,? said Kurt McNeil, GM?s vice president of U.S. sales operations. ?We are going to stay disciplined, but we are going to be competitive too.?

Bill Fay, group vice president and general manager of the Toyota division, said the overall sales environment may be more stable this year than in recent years.

While interest rates have risen in the past year, they are still relatively low in historical terms. Lenders are willing again to make car loans to consumers with less-than-perfect credit histories. As long as delinquencies don?t spike, credit availability should stay strong.

For the past two years, the auto industry?s recovery has been stronger than that of the broader economy.

Now the U.S. economy has caught up to the pace of automakers? rebound.

?We expect the economic recovery to continue in 2014 and actually hope that the industry transitions from mostly pent-up demand to benefiting more from broader economic gains,? Toyota?s Fay said.

Source: MCT Information Services