The deepening downturn in new housing starts in the United States, combined with soaring consumer debt triggered by rising adjustable rate mortgages will continue to hold back light vehicle sales there during the rest of 2007, according to CSM Worldwide.
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Its analysts recently reiterated their earlier prediction that consumer budgets had now been stretched to breaking point as a result of the mortgage crunch, and this would drag sales down to 16.2m units this year, 350,000 fewer than in 2006, and the lowest sales level since 1998.
Fallout from the U.S. mortgage and credit crisis spread on Wednesday as Accredited Home Lenders Holding, HSBC Holdings and Lehman Brothers Holdings announced job cuts and concern mounted about the longer-term impact on the economy.
Several major US mortgage lenders on Wednesday announced plans to cut more than 4,000 jobs, bringing the total of announced housing-related job losses since last Thursday to more than 12,600, Reuters reported today (23 August). Many of the cuts related to subprime lending, which involves loans to people with weaker credit, the report said.
According to CSM Worldwide, new light vehicle sales historically correlate closely to housing construction starts, which were down 26% year on year in the first six months of 2007. July was down a further 6% to the lowest level in more than 10 years.
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By GlobalData“We looked at data going back to 1970, and it’s remarkable how closely light vehicle sales mirror housing sales, particularly new housing starts,” said CSM senior economist Charles Chesbrough.
“With many consumers having a harder time getting mortgages or coping with higher payments from their adjustable rate mortgages, there will be a considerable impact on light vehicle sales. Weak sales of existing homes and declining home values also are dampening consumer spending, leaving less money available for vehicle purchases.”
Chesbrough also noted that overall consumer debt is up 13% over the past five years, and mortgage debt has soared 23% in the same period.
Consumers who opted for adjustable rate mortgages to get into homes they otherwise couldn’t afford now find themselves stretched beyond their means.
According to CSM’s senior manager of North American vehicle sales forecasting, Joe Barker, sluggish demand for new vehicles will recover no sooner than the fourth quarter of 2008.
Market fundamentals have deteriorated and will need at least a year to rebuild, CSM said. The fast-growing crossover segment, which has enjoyed a sales surge of 82% over the past five years, will grow another 78% by 2013, largely at the expense of traditional body-on-frame SUVs.
“The crossover market already is as large as the traditional SUV market during the truck boom of the late-1990s and we only have seen the tip of the iceberg,” said Barker. “Favourable demographic trends and another wave of new products will lift crossover sales from 2.8 to 5.0m units in the foreseeable future.”
Barker also noted, however, that CSM expects sales of small cars and luxury vehicles to grow at a healthy clip.
The forecaster currently expects North American light vehicle production to fall to 15.1m units in 2007, 15.3m a year ago. It sees most of the downturn at GM, down 9.5%, and Ford, down 6.1%.
However, despite lower overall production, several OEMs will boost production – Chrysler by 3.8%, Toyota 7.7%, Honda 3.4% and Nissan 4.4%, CSM added.
