Auto Sales To Dip Slightly In 2019 But Remain Strong, Says Dealer Group

The top trade group for automobile dealers is forecasting another year of strong new car and light truck sales, it announced ahead of the opening of the North American International Auto Show in Detroit. The National Automobile Dealers Association (NADA) says sales for 2019 will approach 16.8 million, down slightly from 2018's 17.3 million units.

"We expect the sales momentum to continue this year," said Patrick Manzi, NADA senior economist. "The 2019 auto show season kicks off in Detroit. Dozens of new vehicles, with auto show rebates and incentives, will soon arrive in dealer showrooms across the country that will appeal to consumers and spark auto sales during the first quarter."

Cox Automotive, which provides analysis and services to dealers, is sounding a more cautious alarm to 2019, backed by shrinking dealer enthusiasm. According to data from the Q4 2018 Cox Automotive Dealer Sentiment Index (CADSI) released on Dec. 10, 2018, U.S. auto dealers became more negative than positive in describing the current market in the fourth quarter. The current market index fell to 44, down from 51 in the third quarter.

Expectations for the first quarter of 2019 also declined and moved into negative territory for the first time in the survey's history, the group said. The index reading came in at 49, indicating dealers expecting conditions to be weak in the future outnumber those who think conditions will be strong.

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"The fourth quarter represented a notable negative turn in overall dealer sentiment and their outlook for the future," said Jonathan Smoke, Cox Automotive chief economist. "The big negative swing in expectations that was significantly lower than last quarter and the same time last year is especially alarming."

Low gas prices in 2017 led to an uptick on light truck sales, which accounted for 69 percent of all sales compared to 65 percent the year before. Manzi said that gas prices should remain low enough this year that consumers will continue to purchase light trucks. Ten years ago, the mix of light trucks to cars was 48 percent to 52 percent.

"One of the main factors for this shift has been continued low oil and gasoline prices and the fact that crossover utility vehicles are nearly as fuel efficient as their sedan counterparts. And we've seen fuel economy increases across the board, not just on crossovers but also traditional SUVs and pickups," Manzi said.

Ford Motor Company F said sales in December fell 8.8 percent and General Motors Company GM also posted a decline in the fourth quarter, down 2.7 percent. Toyota Motor Corp. TM posted a 0.9 percent decline in December sales versus 2017, led by its passenger car division, which fell 16.5 percent. Fiat Chrysler FCAU up 14 percent, and Nissan NSANF, up 7.6 percent, posted gains, led by their truck divisions.

The automakers back up NADA's optimism for the year, expecting the good economy and low gas prices to continue to carry the momentum of the past few years.

"We feel confident heading into 2019 because we have more major truck and crossover launches coming during the year and the U.S. economy is strong," said Kurt McNeil, U.S. vice president-Sales Operations for General Motors in a statement earlier this month.

"Despite recent market turbulence, the data we have in hand suggests an economy that remains on solid footing heading into the new year," Emily Kolinski, Ford chief economist, noted on a conference call earlier in January. "Consumers seem to be looking through market volatility to focus on continued positive job and income conditions."

Cox, though, is warning that the boost in paychecks last year due to tax reform may have a negative impact in that many consumers may be receiving smaller or even no refunds this spring, which could dampen auto sales, particularly in the used vehicle market. The used-vehicle market sees the greatest impact from tax refunds, Cox said, with March and April historically enjoying up to 15 percent higher used-car sales than the average month. This boost also boosts prices, generally between 3 percent and 5 percent.

In July, the Government Accountability Office (GAO) issued a warning that in a rush to get new tax tables passed, changes were made that could result in millions of Americans who normally receive a tax refund to not receive one this year. The IRS issued refunds to 75 percent of all filers in 2017, with the average refund $2,800.

The GAO said about 30 million taxpayers are not having enough taxes withheld from their paychecks, based on the new tax tables. That is up from about 27 million in 2017 under the old tax law.

"This means that fewer people are likely to get refunds. More people will likely owe taxes. The average refund is likely to be lower. Refunds in total are likely to be less and therefore have less of an impact on the auto market and the economy in general," Cox Automotive wrote. "If the majority of consumers are unaware (they are getting less money), then it is highly likely they will be surprised at the time of tax filing. That surprise could take a [toll] on consumer confidence."

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