Mounting domestic economic woes mean that over a million units could be lost from the US light vehicle market in 2008 according to forecaster JD Power.

The respected forecaster's latest projections are for the US light vehicle market to decline from 16.1m units in 2007 to 14.95m units in 2008.

JD Power Chief Economist Bob Schnorbus told delegates at the JD Power Global Automotive Forecasts Conference in Frankfurt that North American vehicle sales (US, Canada and Mexico) in 2008 will be the worst since 1998 at 17.7m units - with US sales alone the worst since 1995.

Schnorbus said that in the first quarter of the year light vehicle sales declined in the US by an annualised rate of 25% and that there will be another two quarters with similarly poor sales results before any signs of improvement.

"The US economic outlook has changed for the worse in a very short period of time," Schnorbus maintained. 

Will the US economic recession be V-shaped or U-shaped? "I'm leaning towards U-shaped," said Schnorbus.

"The housing market is tanking and that's dragging the rest of the economy down with it - it's becoming a question of how long the bottom will be. And what's really disturbing me is that employment has now turned negative. Consumer confidence is back to recessionary levels. It's quite likely that confidence will continue to erode over the next several months at least.

"The retail market has been slowly sliding since 2001. But in the first quarter of this year the main weakness was in fleet sales. To me that suggests there is retail weakness still to come, given what's going on with the economy and the consumer."

Schnorbus said that a break on the US recession will be provided by the weak dollar and a fiscal stimulus from tax rebates. "It's not all bad. The trade-weighted dollar is a positive, but that won't feed back to consumers very quickly. The tax rebates coming will be a significant factor though."

"Another point is that foreign makes are losing out now, not just the domestics and the Big Three - perhaps a sign of dollar weakness and also how weak demand has become."

Schnorbus told just-auto that the industry is busy revising forecasts down and that JD Power's 14.95m projection is becoming nearer to the new industry consensus.

"Hopefully we won't have to revise it down again," he said. "There is further room to fall but we're beginning to touch the lower bound, based on long-term historical trends and our assessment of the point at which sales are driven by the need to keep plants running."

Schnorbus cautioned though that much depends on the developing economic situation. JD Power's analysis of past sales cycles suggested that if the economy worsens or there are 'nasty surprises' then "it is not inconceivable that the market could decline as far as an annualised rate of 14m units."
 
However, there was some good news for Canada and Mexico which he said had partly decoupled from the US thanks to strong demand for commodities and strong domestic demand.

The forecaster said that the light vehicle market in Canada will be flat in 2008 at 1.65m units, with little change in 2009. Light vehicle sales in Mexico are forecast to grow from 1.09m units last year to 1.12m units in 2008 and 1.19m units in 2009.

Dave Leggett