Don't Be Fooled: The U.S. Auto Sales Party Is Coming to an End

(Bloomberg) -- Carmakers have enjoyed an extended run of near-record U.S. sales and fat profits. But this year, it looks as if the party really will start to end.

Interest rates are on the rise. The average price of a new vehicle has hit record levels, which is pushing some buyers out of the market. And don’t let the surprise squeaker of a 2018 sales gain fool you: Automakers kept the numbers up partly by selling more cars to rental companies.

Don't Be Fooled: The U.S. Auto Sales Party Is Coming to an End

On top of that, President Donald Trump’s tax cut helped support demand in 2018, especially for corporate buyers who added to their fleets. But a fourth-quarter decline at General Motors Co. shows the boost could be a sugar rush that won’t last long.

The biggest U.S. automaker’s deliveries fell at a faster rate in the last three months of the year than for all of 2018, suggesting demand is weakening, said Charlie Chesbrough, senior economist at Cox Automotive, which is forecasting sales to slow further in 2019. “For some automakers, the slowdown has already begun,” he said.

Ford Motor Co. has a similar view on 2019, especially since the benefit of Trump’s tax reduction probably will fizzle.

“We’ve had a gradually declining trend on retail even with the tax changes,” said Emily Kolinski Morris, Ford’s chief economist. “That’s the kind of trajectory we would anticipate given continued headwinds on the economic side.”

The annualized sales rate in December accelerated to 17.6 million, according to researcher Autodata Corp., beating analysts’ average estimate for 17.3 million. Ford and Fiat Chrysler Automobiles NV missed projections, while Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. exceeded expectations.

Don't Be Fooled: The U.S. Auto Sales Party Is Coming to an End

Toyota is planning for a year in which carmakers sell in the “high 16 million range,” according to Jack Hollis, general manager of the company’s namesake division in North America. It could be more, he said, but Toyota anticipates a decline from the 17.3 million vehicles sold last year.

Jamie Albertine, senior analyst with Consumer Edge Research, sees an even bigger drop, with sales slipping to about 16.5 million in 2019. Fleet purchases were up 10 percent last year, and that won’t continue, he said. Rental-car companies will pare back supplies on their lots, and commercial buyers are unlikely to see any new tax benefit. Retail demand also is softer and won’t support the 17 million total sales the industry has enjoyed for four consecutive years.

Don't Be Fooled: The U.S. Auto Sales Party Is Coming to an End

Auto executives are quick to caution that deliveries won’t crater this year. Unemployment is low and consumer confidence has been strong, said Scott Keogh, president and chief executive officer of Volkswagen of America, who predicts 2019 sales will be about 17 million. Gasoline also is cheap, with regular unleaded averaging just $2.25 a gallon, a level last seen in July 2017.

The biggest problem is uncertainty. Consumers are watching interest rates rise and are wary of what’s been a volatile stock market of late. News about both have hurt sentiment, Keogh said on a conference call with reporters.

“When the headlines say that the market has had the worst falloff since 2008, that will rattle consumer confidence,” he said.

In fewer than two weeks, many of the world’s top automakers will show off their newest models at the North American International Auto Show in Detroit. But the cars won’t be the big news, said Morgan Stanley analyst Adam Jonas.

“Look for management teams to use the Detroit Auto Show as an opportunity to guide down,” Jonas wrote in a research note. “We are prepared for expectations to be dialed back significantly.”

©2019 Bloomberg L.P.