A bright outlook for 2015 -- with a few worries

King: “The rate of growth is slowing.” Photo credit: JOE WILSSENS

SAN FRANCISCO -- Risky car loans are on the increase, rising interest rates will put a crimp on product prices, and a new wave of off-lease vehicles soon will wash over the market.

That’s the bad news, Thomas King, J.D. Power vice president of OEM operations, told the audience at Power’s Automotive Summit on Thursday at the National Automobile Dealers Association convention here.

The good news: This year likely will deliver the second highest new-vehicle volume in history. Customer satisfaction is at its best level ever. Transaction prices are up $700 a vehicle from a year ago, and retailers can expect to turn an additional 400,000 sales this year.

But King warned that as the industry continues to rack up new riches, the risks also are mounting.

“The rate of growth is slowing,” King says.

This year’s forecast for 400,000 additional sales compares with a 700,000-vehicle increase in 2014.

“It means it’s going to be tougher to succeed,” he says. “Everybody’s expecting success, but there’s going to be fewer units of growth to go around.”

He notes that the industry will turn out 142 new or redesigned models this year — up from 136 last year. But existing models are finding it increasingly difficult to grow volume, he says.

Power’s market data show that 70 percent of mainstream models were able to eke out year-over-year volume increases between 2011 and 2013. Last year, just 59 percent of models were able to.

King also observes that the volume of vehicles coming off lease has been relatively small and manageable for the past few years. Last year, the number increased by about 500,000. But next year, the number will increase by an estimated 800,000 vehicles over 2015.

He also notes that vehicle loans are growing longer and riskier. Last year, 72-month loans accounted for 32 percent all new-vehicle loans, compared with 22 percent in 2009. And although the percentage of 84-month loans is still relatively small -- 3 percent last year -- it increased from 2 percent a year earlier.

Meanwhile, the number of new-vehicle loans that equal 110 percent of the vehicle’s value increased from 9 to 14 percent between 2009 and 2014.

That percentage change translates to 653,000 consumers, up from 162,000 in 2009.

“The numbers are not really a problem,” King says. “But it will be something to watch.”

You can reach Lindsay Chappell at lchappell@crain.com

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