CHERRY HILL, N.J., April 21, 2016 /PRNewswire/ -- U.S. auto
sales will extend their winning streak in 2016 for a seventh
consecutive year of increases, reaching a record high before sales
begin to retreat in 2017 as interest rates tick higher and pent-up
demand eases, according to a new report by TD Economics
(www.td.com/economics), an affiliate of TD Auto Finance and TD
Bank, America's Most Convenient Bank®.
"A healthy domestic economy and favorable financing terms should
help to propel auto sales higher this year," said Dina Ignjatovic, economist at TD Economics.
"Given the massive deleveraging by households in recent years,
combined with affordable monthly payment options, the ability of
Americans to purchase a new vehicle has improved dramatically."
Strong domestic economy will support sales
Led by a strong economic backdrop and attractive financing
conditions, TD Economics projects U.S. auto sales will reach a peak
of 17.6 million units in 2016, before edging down to 17.3 million
units in 2017. The U.S. economy is on solid footing, with healthy
growth of at least 2 percent expected for this year and next.
Domestic demand has been the key driver of overall growth – a trend
that is likely to continue going forward.
"The availability of credit and affordability of vehicles is a
winning combination for auto sales in 2016," said Andrew Stuart, President and CEO of TD Auto
Finance. "With the current state of the economy, buying a car
is now more attractive than ever, making it an exciting time to be
in the automotive finance industry."
Ongoing job creation is projected to bring the unemployment rate
down to 4.6 percent by the end of next year, while employment
income growth is likely to remain above 4 percent. Combined with
rising wealth stemming from a recovery in the housing market and
stronger household balance sheets, consumers will be well
positioned to loosen their purse strings and consider purchasing
big-ticket items such as autos.
Consumer automobile buying patterns impacted by
financing
The low cost of credit, longer loan terms and the rise in
leasing have all worked to lower monthly payments, making the
purchase of a vehicle less of a financial burden for consumers.
Interest rates on 48-month new car loans are hovering around record
lows of about 4 percent, while the average loan length increased to
67 months in the fourth quarter of last year.
Average transaction prices have also been rising – up 2.2
percent in 2015. However, this is not entirely due to higher price
tags. The shift in demand toward luxury vehicles and light trucks –
with crossover SUVs and pick-up trucks recording the largest
increase last year – means that consumers have been purchasing more
expensive vehicles, which will ultimately raise the average price
paid. Without the extension in loan terms, leasing and low interest
rates, consumers may have instead opted for smaller, more
affordable vehicles, according to the report.
Industry facing headwinds that will take some steam out of
sales
While currently at a healthy level, sales will begin to level
off as pent-up demand has largely been absorbed, the consumer
buying cycle is being stretched out, the vehicle ownership rate is
expected to decline and competition from the used car market is
expected to take some steam out of the market. Indeed, drivers
appear to be holding onto their vehicles for longer, and recent
trends – including a shift in lifestyle preferences and car sharing
– suggest that ownership rates could decline. Moreover, an
influx of young, used vehicles set to hit the market will provide
consumers with more options when purchasing a vehicle.
Disruptors disrupting
Self-driving vehicles, one of the largest disruptors in decades,
could change the entire landscape of the market. As prototypes for
autonomous cars evolve and move closer to adoption, this yet
unregulated area could pose additional complexities for the
industry. Still, recent and forthcoming disruptors could be a
positive for auto sales in the future, particularly those related
to 'connected' vehicles, as staying connected at all times has
become a way of life for many consumers – especially millennials.
Automakers cannot become complacent in this rapidly changing
environment, where disruptors will continue to be a key element of
the market, intensifying competition, TD Economics advises.
Bottom line
Auto sales are expected to remain around the 17 million unit
mark for some time. However, a longer-term norm for sales is likely
closer to the mid-16 million unit range, as the recent trek above
17 million is still satisfying demand that was built up during the
recession. Automakers must anticipate such a move to more
sustainable levels and manage this transition in a way that doesn't
lead to a sharp correction in sales.
TD Economics provides analysis of global economic performance
and forecasting, and is an affiliate of TD Bank, America's Most
Convenient Bank®.
The full TD Economics report is available online at
https://www.td.com/document/PDF/economics/special/US_Auto_2016.pdf
About TD Bank, America's Most Convenient
Bank®
TD Bank, America's Most Convenient Bank, is one of the 10
largest banks in the U.S., providing more than 8 million customers
with a full range of retail, small business and commercial banking
products and services at more than 1,200 convenient locations
throughout the Northeast, Mid-Atlantic, Metro D.C., the Carolinas
and Florida. In addition, TD Bank
and its subsidiaries offer customized private banking and wealth
management services through TD Wealth®, and vehicle
financing and dealer commercial services through TD Auto Finance.
TD Bank is headquartered in Cherry Hill,
N.J. To learn more, visit www.tdbank.com. Find TD Bank on
Facebook at www.facebook.com/TDBank and on Twitter at
www.twitter.com/TDBank_US.
TD Bank, America's Most Convenient Bank, is a member of TD Bank
Group and a subsidiary of The Toronto-Dominion Bank of Toronto, Canada, a top 10 financial services
company in North America. The
Toronto-Dominion Bank trades on the New
York and Toronto stock
exchanges under the ticker symbol "TD". To learn more, visit
www.td.com.
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