It’s wonderful to be starting an expected seventh straight year of U.S. auto sales growth. The record 17.5 million light vehicles sold in 2015 were a remarkable 7.1 million more than in 2009 and the six consecutive years of gain is a string unmatched since the 1920s.
But here’s the rub. The longer the string, the bigger the gains, the more likely the unknowns are to turn around and bite.
As the industry gathers in Detroit this week, the signs point to yet another, even better sales year in 2016, maybe even 2017.
That’s just it. It’s a cyclical industry. Sales can’t grow forever. Everybody knows it, felt it in the 2008-09 crash. It was a harsh lesson, but one that sticks.
So the face of sales forecasting optimism in 2016 is cautious, edging toward jittery. To my overblown imagination (as in, nobody actually said this), I’m hearing … probably a bit of growth, but watch out.
The metrics are mostly positive. The logic of more gains is sound. But as growth slows, the margin between up or down gets thinner. It takes less to break the string.
So forecasters are careful to give themselves an out.
Take Cox Automotive, which projects a 2016 sales range of 17.5 million to 18 million, followed by a small 2017 decline.
“My outlook is scarily close to the consensus,” Cox Chief Economist Tom Webb said today at a morning gathering. “But as a hedge, I would note there is an unhealthy disregard for the downside risks.”
Alec Gutierrez, senior analyst for Kelley Blue Book, a Cox subsidiary, adds, “We really can’t discount the downside risks.”
At IHS Automotive, which forecasts 17.8 million sales in 2016 and 18.2 million in 2017, analyst Tom Libby worries about potential geopolitical flares to break the string.
Also at a Society of Automotive Analysts session this afternoon, Libby’s IHS colleague Mike Jackson sees more growth and continued high margins. He downplays the risk of auto sales falling this year and ticks off a long list of factors favoring growth.
But Jackson notes that because manufacturers were careful not to overexpand capacity, they and their suppliers may have trouble raising production to meet higher demand.
“The pinch points get tighter and cost more to overcome,” he says. “We are encouraging clients to get more input” and increase planning frequency.
See? This year, scratch even a sanguine forecaster and he urges caution.
Again, that’s the rub. Yes, all that discipline and restraint the industry has been complimenting itself for since the Great Recession worked. Now it also may hamper further growth.
After such a long run the industry’s confidence may waver, grow hesitant.
The data remain strong. But like a party starting to wind down, more people think about leaving. Nobody wants to be the last to leave.
The industry’s own fears could become the biggest danger to more growth. If so, perhaps the 2016 watchword is: prepare for adversity, but plan on growth.