Growth of the US light vehicle market is being underpinned by strong momentum in retail sales alongside a strengthening economy, according to JD Power.
JD Power Automotive Forecasting’s Director Jeff Schuster told the Global Outlook Conference in London last week that the US light vehicle market is off to a strong start in 2011, underpinned by a reviving economy and strong momentum in retail sales.
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JD Power is forecasting that the US light vehicle market will reach 13m units in 2011, 12% up on 2010. While the market is still way down on the 16m-17m levels of the 2003-2007 period, Schuster sees some upside potential ahead – though he acknowledges risks associated with the recent rise in oil prices and ongoing geopolitical turmoil in the Middle East.
“Consumer confidence has been hit lately,” he told delegates.
“But going forward beyond this year, economic growth projections [3-4% annual growth of GDP this year and next] look pretty good and there will be growth to demand coming from increased household formation coinciding with higher replacement demand,” Schuster maintains.
And more younger people becoming economically active will also be accompanied by older people staying in the job market for longer.
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By GlobalData“The baby boomers will not be retiring as the previous generation did and to get to and from work in the US, you need a vehicle – so that will help to support longer-term volume,” Schuster said.
Schuster also noted that retail – regular consumer – purchases have been showing increased momentum through the second half of 2010 and into 2011.
“Retail purchases in the first quarter were actually stronger than we had expected and we think that is a good indication that this recovery is a real recovery,” Schuster said.
“Fuel prices are a drag on the overall volume right now, but economic drivers are mainly favourable. There has also been a significant increase in credit availability, improved vehicle equity positions and plenty of product action. Higher vehicle prices and lower incentives generally – there’s a better balance between supply and demand now – compensate for some of that.”
Indeed, Schuster said that without the recent rise in oil prices and the negative impact of the Japan crisis on vehicle production, the US light vehicle forecast for this year would have been raised to 13.2m units by now (it is at 13m units). Nevertheless, retail sales are expected to grow by 16% to 10.6m units this year.
In the longer-term, Schuster expects to see the US light vehicle market to once again exceed 16m units in 2014. The fleet mix is expected to settle at 18% of the market.
Schuster was cautious however on prospects for vehicle downsizing and permanent shifts in market segmentation following recent new product activity and higher sales of sub-compacts.
“Overall, we are certainly seeing a very high level of small vehicle new product activity in the US,” he said. “But some of these vehicles, such as the Segment A and Segment B vehicles that are being introduced, then the rise in gas prices is certainly pushing buyers towards looking at those…and coming off of the spike in gas prices a few years ago, the recent recession in the US, that’s all helping lift interest, but all in all it’s still an unproven area in terms of where true demand will be for small vehicles in the US.”
“And large (including pickup trucks) vehicles will suffer continued decline, but will be far from extinct in our forecast,” Schuster added.
With respect to the impact of the Japan crisis, Schuster said that he is expecting around 100,000 units of loss production in North America in the second quarter due to parts shortages to be made up in the second half of the year. He also warned that there is a volume risk for the Japanese OEMs and that production shortages for them could benefit Hyundai and the Detroit brands.
“The Detroit brands have been behind in terms of having competitive small cars but that has changing,” said Schuster. “Chevrolet has the Cruze, there’s the new Ford Focus coming, as well as Fiesta, and it’s a much more competitive line-up in B- and C-Segment cars for the Detroit brands in segments where the Japanese OEMs have traditionally been strong in the US. So, we could see some interplay depending on how widespread the Japanese parts shortage becomes and what models are affected.”
He also warned that production capacity in North America remains well above demand in spite of a capacity cut of 1.5m since 2006. Light vehicle production capacity is projected to be 29% above North American domestic sales in 2013 compared to a very similar 30% above in 2006.
