U.S. auto sales are likely to remain sluggish and may fall again next year due to a deepening slump in the housing market that is eroding consumer confidence, say automakers, consulting and investment firms.
Industry experts say they expect the market to contract because discounts have lost some of their effectiveness after propping up demand for several years. Detroit's automakers, in the midst of turnaround plans and capacity cuts, are reluctant to pile on the amount of incentives necessary to boost sales.
U.S. car and truck sales are on track to end 2007 at a nine-year-low of around 16 million vehicles, down from 16.6 million in 2006 and 17 million in 2005.
General Motors Corp. officials expect a flat market next year, while Nissan Motor Co.'s CEO Carlos Ghosn said in October that the market would be flat at best, ranging between 15.5 million and 16 million vehicles.
Toyota Motor Corp. expects U.S. auto sales to total 16.1 million vehicles this year and next.
“Probably the first half of the year will be tracking below that rate, and the second half of the year will probably be above that rate, ending up at around 16.1 million,” Toyota Motor Sales President Jim Lentz told The Detroit News this week.
Investment firm Deutsche Bank lowered its 2008 sales forecast to 15.75 million units from 16.5 million. It pared its 2009 estimate to 16.5 million from 16.7 million, and left its 2010 forecast at 17 million units.
Investment firm Bear Stearns has reiterated its forecast for 2008 sales ranging between 15.5 million and 15.7 million vehicles.
“With pressures mounting from housing, energy and food prices, and credit availability, demand appears to be waning,” said analyst Peter Nesvold.
Grand Rapids research firm IRN Inc. said in a study that the economy's weakness would extend into 2008, with problems in the housing market also affecting durable goods production.
“Consumer confidence has already been shaken due to higher debt-service levels, an increase in home foreclosures, high gas prices, and now a stock market that has been in decline,” it said.
Given the context, IRN said inventories totaling 2.67 million units in October, or a 74-day supply, seemed high and may require Detroit's automakers to scale back production early in 2008.
In previous slowdowns, automakers hiked incentives to underpin sales and keep factories turning. But incentives remain effective only if automakers continually increase them — undermining their profitability in the process.
“The stronger correlation between consumer confidence and light vehicle demand will return in 2008,” it said, “as automakers really cannot push incentives any higher.”
