Pub. 8 2018 Issue 3

20 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com A fter six years of consecutive growth in sales, 2017 ended with light-vehicle sales down by roughly 2 percent. Many will see this headline stat and think that dark times are ahead for the industry, but a year with 17.14 million light vehicle sales still ranks in the top five all-time best years for the industry and this sales level is indicative of a very healthy market. Looking forward to the end of 2018 and on in to 2019, we see sales levelling off at around 16.7 million units per year. The U.S. economy recently entered its ninth straight year of expansion and overall seems to be doing quite well. We believe growth will continue and the risk of a recession remains low. The recent tax legislation should add a few tenths of a percent- age point to GDP growth this year, but these effects are likely to be temporary. We expect GDP growth to be 2.6 percent in 2018, and 3.0 percent growth this year could still be possible. However, we expect growth to level off at around 2.5 percent in 2019. Consumer confidence measures recently hit a 17-year high, a strong indication that consumers are willing to make large asset purchases. The January jobs report showed wage growth accel- erating and this seemed to usher in the return of volatility to the high-performing equities markets. We expect the Federal Reserve to increase interest rates three or four times in 2018, pushing the federal funds rate above 2 percent by the end of the year. Sales have fallen slightly from back-to-back record years, but there are still bright spots for the industry. Transaction prices on new vehicles have been growing steadily year-after-year and this trend has been driven by several factors. Consumers continue to shift their preferences from cars to light trucks, which tend to transact at higher prices and are also more profitable for manufacturers and dealers. Consumers have also taken advan- tage of the low interest rate environment and have extended their car loans for longer terms, which has allowed them to tick more boxes on the order sheet while keeping their monthly payments relatively f lat. Over the past few years, when a con- sumer visited the dealership, they found that their trade-in had a higher value and this was also able to help offset the increased cost of their new vehicle. There is currently a great shift in preferences happening primarily in the U.S. vehicle market. In a little under five years, the U.S. light-vehicle market has shifted from a roughly 50-50 split between cars and light-trucks to a market where light-trucks now make up nearly two-thirds of all new light- vehicle sales. Such large shifts in preferences can be difficult to react to in a manufacturing environment. Most plants have some f lexibility with production, but significant changes in output can take several months to implement. Furthermore, shifting production too far in either direction of consumer preference can be harmful to the business. The industry ended 2017 with 3.8 million units in inven- tory on the ground across the U.S., up from 3.4 million units BY PA TRICK MANZI A Snapshot of National (And International) Economic Indicators