DETROIT -- The auto industry will sell over 17 million vehicles in 2015 and could reach 20 million in 2018, but expect a sharp downturn after that.
So predicted John Murphy, lead U.S. auto analyst in equity research with Bank of America Merrill Lynch, during his presentation to the Automotive News World Congress on Wednesday.
“We expect the cycle to continue for the next two years, reaching a peak in 2018 at 20 million units,” he said. “That’s a lot higher than most people are expecting but we also believe there will be a very significant downturn after that.”
For now, he said, “We’re in a good recovery.”
In 2014, U.S. sales grew 6 percent to 16.5 million vehicles. It was the fifth straight year U.S. deliveries grew after hitting a 27-year low of 10.4 million in 2009 during the Great Recession.
Murphy said his new-vehicle sales forecast for 2015 is 17.3 million and gave several reasons to support his prediction.
He said dealers’ new-vehicle stock is normal and the population of vehicles on the road that are 11 years old and older has increased by almost 28 percent over the last eight years.
“And when you think about obsolescence beginning to occur and technology and fuel economy improvements, those older cars are more likely to get scrapped,” he said.
Murphy said those factors all lead to strong vehicle pricing for new and used vehicles, which will reduce the need for aggressive incentives or price cutting.
He said the industry’s recovery so far has been propelled by replacement demand. But improving consumer confidence and an increase in the number of miles driven, after several years when that measure held steady, are creating more discretionary demand for vehicles.
But Murphy cautioned that the good times won’t last forever and the automakers need to hold the lines on their balance sheets.
He added that this is not time to “blow” capital investing in “willy-nilly projects.”