Jul. 16 2019 — With increased overall odds of a recession (12 months out), declining used vehicle prices and ongoing geopolitical risks, U.S. automakers face a tough road ahead. Overall, light vehicle sales declined about 2% in the first half of 2019, with higher fleet demand partially offsetting the decline in retail sales and sales of SUVs and trucks continuing to dominate the market. S&P Global Ratings now expects a 3% decline in light vehicle sales in 2019 to 16.7 million units (revised up from 16.6 million). We expect a further decline toward 16.2 million by 2021, the lowest level since 2014.
At the same time, we expect that weakening growth momentum and a benign inflation outlook will now prompt the Fed to lower interest rates--perhaps with a cut of 25 basis points (bps) during the third quarter. Over the next 12 months, we do not expect a steep decline in auto sales as automakers launch newly updated trucks and utility vehicles, while largely maintaining incentive discipline amidst low gas prices and potentially lower financing costs later this year.
Following the Great Recession, U.S. auto sales hit a trough of 10.4 million units in 2009 before revving up again. Sales significantly outpaced GDP growth for six consecutive years and peaked at 17.4 million units in 2016. We believe the declines in 2017 and 2018 stemmed from historically low interest rates, tax refunds, abundant incentives, and low gas prices in previous years having motivated buyers to purchase vehicles sooner than they otherwise would have.