Auto Sales in the US Seen at Annual Level of 16 Million Units image

Analysts predict that the US auto market will increase for the fifth consecutive year and sales are expected to reach the level last seen in 2000.

New car and light truck deliveries are expected to reach 16.1 million in 2014, which would be with almost 500,000 more vehicles than carmakers are on pace to sell by the end of this year. Last month the annualized pace of auto deliveries surpassed 16 million units for the first time in the past 6 years.

“It’s not just the number 16 that’s amazing,” George Magliano, chief economist for IHS Automotive, said by telephone. “It’s the fact that it’s coming effortlessly. We’re not dumping cars and trucks into the fleets. We’re not using humungous incentives to move them. It’s a reflection of people’s willingness to buy and the strength of the product out there.”

The last time when sales in the US increased for 5 consecutive years was from 1996 to 2000, when Ford, GM and Chrysler took advantage of the increasing demand for SUVs and pickups. But as gas prices increased, the automakers were not prepared for shifting tastes, and so, even if annual sales surpassed 16 million, Detroit kept falling further behind.

Now the situation is different as automakers have expanded into the small and mid-size segments, commanding record-high prices. Mark Wakefield, a managing partner for AlixPartners LLP, considers that the natural midpoint for sales in the US is somewhere around 16 million annually, but he is worried about the payback that might follow if the number reaches 17 million.

“I care less about the natural mid than about how far this cycle is going to go beyond that, and then when it will come back, because I know it will,” Wakefield said in an interview.

Morgan Stanley says that the auto industry in North America has reached the fastest growth level since 1950 and that by 2015 automakers will add 3.5 million cars worth of annual production capacity. But the industry’s capacity of manufacturing vehicles is increasing faster than demand is, therefore analysts predict that the demand level will go back to near 2007’s level in 2014.

Although GM, Chrysler and Ford have gone through some really bad times in 2006 and 2009, now the three automakers have managed to overhaul their lineups and offer some of their best passenger vehicles in a generation.

Source: Bloomberg