Analysts Lower 2017 Car Sales Estimates, Posing Implications for Economy

After years of growth, auto sales are decelerating, posing a challenge to future momentum for the economy.

Wall Street has taken notice as well, with more than half of the analysts surveyed by Bloomberg News trimming their full-year projections this spring. Analysts surveyed by Bloomberg are paring estimates to 17.2 million light vehicles. The industry, which comprises about 2.6% of gross domestic product, set a record with 17.55 million cars and light trucks sold last year.

Autotrader, one of the industry’s main sources for sales data, has kept an estimate range of 16.8 million to 17.3 million.

Auto makers are not being as generous with discounts as industry watchers expected, and the lack of legislative action in Washington is tamping down market enthusiasm for a Trump presidency primed to post accomplishments from day one of the new administration. The car market is also awash with vehicles from the rental car segment, as well as used cars.

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The industry had been buoyed by the prospect of tax cuts and infrastructure spending that would boost the industry. Trump, as a candidate and as president, has targeted the auto industry for keeping jobs in the United States.

Even so, year-to-date vehicle sales have industry watchers concerned. Total light vehicle sales slid 2% to 6.9 million from 7.1 million a year ago, according to data from Motor Intelligence.

Among the big five carmakers, sales of General Motors Co. (NYSE: GM) vehicles are down 1.1% to 1,170,412 from 1,183,705; Ford Motor Co. (NYSE: F) is off 3.5% to 1,067,231 from 1,106,074; Fiat Chrysler Automobiles N.V. (NYSE: FCAU) declined 6.7% to 864,872 from 927,218 and Toyota Motor Corp. (NYSE: TM) fell 4.7% to 952,785 from 999,545. Honda Motor Co. Ltd. (NYSE: HMC) sales were virtually unchanged at 652,093.

Edmunds Chief Economist Lacey Plache offered some optimism for the industry in an article titled “Peak Auto Sales Still to Come.” Plache believes there is room for growth in the economy in labor force participation and in median household income. With more people working and earning higher incomes, there’s the possibility of greater car sales.

Plache thinks more sales could be generated from two groups underrepresented as new-car buyers. One is millennials, who Plache says account for 29% of the population but just 11.5% of new-car sales. The other is consumers in households with an annual income of $50,000 or less. They account for 45% of the population but just 26.5% of new-car sales.

Plache says the most promising of Trump’s policies for economic growth is his plan to increase infrastructure spending.

“Lowering unemployment with the proposed good-paying, middle-class jobs has high potential to bring additional new-car buyers into the market,” Plache writes.

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