Pub. 2 Issue 4

F orecasting automotive sales is a delicate balancing act. There are frequently con-flicting indicators that can provide mixed signals on future mar- ket conditions. The trick is identifying these trends, separating the meaningful from the meaningless, and forming a con- sensus on where the market is headed. Below, we identify the key posi-tive and negative forces that are likely to impact the market in 2015. Forces leading the market higher Low interest rates and mild inflation growth have kept new vehicle afford-ability at historically strong levels. Many econo- mists are expecting a slight in-crease in interest rates in 2015, but wages are likely to move higher and gas prices have fallen, which should give a boost to disposable incomes. Payrolls grew steadily during 2014, and the majority of labor market economists are Another Increase Predicted for County New Vehicle Market in ‘15 Annual Trend in LA County New Vehicle Market Market Summary The graph above shows annual new retail light vehicle registrations in the county from 2007 thru 2014 and Auto Outlook’s projection for 2015. Domestic brands consist of vehicles sold by GM, Ford, Chrysler, and Tesla. Data source: AutoCount data from Experian Automotive. The information presented here is an excerpt from the January 2015 release of Los Angeles Auto Outlook. The publication provides timely, valuable, and unique infor - mation on the Los Angeles County new vehicle market. It is published by Auto Outlook Inc., and distributed by the Greater Los Angeles New Car Dealers Association. This year’s increase follows the 9.2% improvement in 2014; market is up 92% between ‘09 and ‘14! expecting this trend to continue in 2015. Employment levels have been posting im- pressive increases, while the unemploy- ment rate is down considerably from the highs in 2009. Increasing employment is an obvious plus for new vehicle sales. Pent up demand and benefits to “up-grade” should continue to give the mar-ket a boost. The average age of vehicles on the road ex- ceeds 10 years, which based on historical standards, is very high. Some have argued that due to improvements in quality and durability, this is to be expected, and the time-line needed to replace vehicles is stretching out. But this only tells part of the story. Greatly improved safety, fuel economy, performance, and technology in today’s cars and trucks provides a powerful motivation for consumers to enter the new vehicle market. The average ten year-old, 2005 model year vehicle can’t even come close to a new, 2015 model. From a car own- er’s standpoint, the mo-tivation to upgrade is powerful. Forces holding the market back While U.S. economic growth was solid for most of 2014, the global economy has slowed considerably. Japan is in a recession, Chinese growth has slowed, and Europe appears to be on the verge of a recession, with deflation. Contin-ued weakness in the global economy could eventually impact the U.S. in the form of slower employment growth, and stagnant incomes. Household balance sheets. Consum-ers have made considerable headway in reduc- ing debt, but are largely hesi-tant to fund increases in spending by adding on more debt. In addition, many have insufficient savings for retirement, necessitating fur- ther restraint in retail spending. Wrap up: Positive factors will likely lead the market higher in 2015, but we believe that the negative factors will place a ceil-ing on how high new vehicle sales will go, and we could approach that ceiling by 2016.  6