US Auto Industry Sales on the Verge of Collapse
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Deutsche Bank pulls out a yellow card warning for the US auto industry. The auto industry in the US is about to head backward after the sheer drop of overall sales in March. The recent auto market research report states that the auto sales in the US dropped 1.7 percent in March. Despite the gains bagged by Nissan and GM, the net sales are known to decline as the sales drop at Ford, Honda, Toyota, FCA, Hyundai, and Kia overshadows the gain.

US Auto Industry may lose its momentum

These results signal that the US auto industry is losing its momentum, contradicting the expectations by industry analysts. The industry-wide deliveries of the March month slow down at an annual pace of 16.6 million vehicles. During last year, automakers reached a record in the US with 17.6 million vehicles sold. Heading with that figure, the analysts expect this year’s sales to hit at least 17.2 million vehicles.

The potential slip in the vehicle sales is subject to the growing interest rates and a lowering rate of used-vehicles. Deutsche Bank analysts Rod Lache, Mike Levine and Robert Salmon wrote in a note that the today’s auto market’s condition resembles majorly with the 2004’s prediction of ‘A Triple Threat’.  The Triple threat report by Deutsche Bank analysts highlighted the risks within the auto industry from increasing rates, growing negative equity in vehicle loans and price deflation of used-vehicles. Moreover, the old Triple Threat prediction states the consequences, “This could lead to deteriorating affordability, delayed trade-in cycles, consumer shifts from new to used, diminishing credit availability and deteriorating mix/pricing.

According to Deutsche bank analysts, the primary concern is that the number of cars on roads is taken off which left an impact on the sales decline. The on-road car rate shifts to about 11 million a year from about 13 to 14 million a decade ago. While the net new drivers in 2015 were 4 million which seem pretty low. Also, the 2012 stats drop an indication: the total number of vehicles in US has increased to just 270 million from 249 million.

US auto industry

When dealing with the decline, the analysts raised two questions:

  • Is the US auto market broadly oversupplied?
  • Is the 17 million trend demand fundamentally supportive or not?

The US market is likely to experience declining used-vehicle prices which will affect new vehicle sales. The used-vehicle price decline accelerated to 7.7 percent in February; an average fall of 3.5 percent was in the first nine months of 2016 itself.

Deutsche Bank analysts mark positive outlook

There are few select market segments that have a positive outlook for pick-up demand of about 6 percent this year. American Axle & Manufacturing Holdings Inc. and Dana Inc. are addressed as compelling due to their great exposure to the market segment. Also, Delphi automotive, Borg Warner Inc. and Goodyear Tire & Rubber Co. have a positive, productive and long-term outlook.

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