Sales and leasing forecast to grow more slowly in 2015

The industry's average transaction price -- what consumers pay after taking incentives -- keeps rising. Photo credit: DAVID PHILLIPS

DETROIT -- Sales will keep growing in 2015 on favorable economic conditions. But automakers also will boost incentives and turn slightly more to leasing.

That’s the position of analysts at Cox Automotive, particularly its Kelley Blue Book unit.

Speaking Sunday ahead of the Detroit auto show, the KBB crew forecast 2015 U.S. light-vehicle sales of 16.9 million light vehicles, about 2 percent higher than 2014’s 16.5 million. That would be the smallest annual unit increase during the recovery that started in 2010. U.S. sales rose 6.1 million units between 2009 and 2014.

The KBB 2015 outlook isn’t that different from forecasts by others. Cars.com expects 17.0 million and Toyota Motor Sales U.S.A.’s admittedly conservative forecast is 16.7 million.

The interesting part is how KBB expects the year ahead to play out: solid retail volume, rising incentives and higher net prices.

Leasing slows

Leasing’s share of new-vehicle transactions will grow more slowly this year than in the past few years, Alec Gutierrez, senior market analyst at Kelley Blue Book, predicted.

KBB expects that the number of new vehicles leased will rise to 3.51 million in 2015 from 3.36 million in 2014.

As a percentage of retail sales, though, that equates to a gain of 25.3 percent this year from 24.9 percent in 2014 and 23.4 percent in 2013, according to KBB data.

Leasing penetration growth is moderating as higher levels of returning off-lease vehicles reduce used-car values, said Eric Ibara, KBB director of residual value.

“Automakers tend to back off leasing either when used-car prices drop or their costs escalate,” he said. “I think there’s opportunity for either or both of those to happen over the coming year.”

He added: “Leasing is already an expensive way to market vehicles.”

On the other hand, Gutierrez said, leasing “could press up beyond 25 to 26 percent” industrywide this year, after averaging “closer to 27 to 28 percent” at the tail end of 2014. December is typically a lease-heavy month because of the strength of the luxury segment that month.

Retail strength

Retail sales will again carry the ball in 2015: rising to 13.9 million from 13.5 million last year, Gutierrez said. By implication, 2015 fleet sales will be roughly flat at about 3 million units.

Average incentives will rise $159 to $2,950 per vehicle, Gutierrez said. That’s the highest dollar amount on record, but net auto prices are rising, too.

As a percentage of average transaction prices, KBB expects 2015 incentives to be 8.8 percent. That’s above the lowest level of 8.0 percent recorded in 2012 and 2013 but also below the highest level of 9.7 percent, seen in 2005 and 2008.

Automakers can still maintain pricing discipline at that level, Gutierrez said. “It’s not at a level where we think there is a risk.”

That’s because the industry’s average transaction price -- what consumers pay after taking incentives -- keeps rising.

KBB expects transaction prices to average $33,500 in 2015, up almost $700 from 2014’s $32,804.

The overall market will be aided by an improving labor market and favorable credit conditions, said Tom Webb, Manheim’s chief economist. Falling fuel prices also will help overall, he said, though that may hurt sales in select markets.

 

James B. Treece contributed to this report.

You can reach Jesse Snyder at jsnyder@crain.com -- Follow Jesse on Twitter: https://twitter.com/spartyjesse

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