New car sales could drop in 2008, but might mean more aftermarket opportunities

While one company’s forecast for 2008 means bad news for dealerships, it could lead to better reports for the automotive aftermarket. CSM Worldwide is forecasting light-vehicle sales to descend to a 10-year low of 15.8 million units in 2008, based on expectations for demand-side fundamentals.

"The market will linger in a cyclical contraction phase," says Joseph Barker, senior manager of North American Sales Forecasting. "The downturn was triggered by diminished consumer purchasing power, depleted pent-up demand, and structural changes at Detroit automakers."

Rising adjustable-rate mortgage expenditures, falling home values and surging energy costs (including gasoline) are draining discretionary income and straining the consumer psyche. In a climate of rising prices, inflation is a threat that could be even more taxing on consumers next year.

Furthermore, CSM reports it is concerned that the negative forces rattling the financial markets on Wall Street could spread to Main Street, forcing consumers to curb spending.

However, this could lead to more consumers keeping vehicles longer, with warranties expiring and then heading to independent repair shops.
Pent-up demand was depleted in 2002-05 and has been slow to rebuild. Zero- percent financing and massive rebates in the four-year period artificially propped-up sales by pulling forward demand. Replenishing the demand pool has been complicated too by the fall-off of vehicle scrappage and leasing. Despite 50 new model launches this year and another 50 in the 2008 pipeline, auto companies will be especially challenged with luring back into dealer showrooms those car owners that are locked in a 0 percent auto loan.

Structural changes are downsizing Detroit automakers in every way imaginable, including sales expectations. "Old-Detroit thinking is finally collapsing to a new era that places emphasis on smaller, more profitable quantities and resuscitating ailing brands," Barker notes.

There will be further reductions in fleet transactions, measured use of incentives and less importance placed on market share. The Detroit Three have built long-range business plans around richer average transaction prices, stronger residual values and wealthier brand equity. This fundamental change in business strategy will shrink sales levels in the near term, but will sculpt each into leaner, healthier auto companies in the long-term.

At the conclusion of this year, combined General Motors, Ford and Chrysler sales will have fallen by 2.1 million vehicles over the past 5 years. Detroit automakers are forecast to sell another 500,000 fewer vehicles next year, while Asian companies expand by 100,000 units to capture 41.5 percent of the market.

In response to weaker U.S. market conditions, import trends and expected inventory management adjustments, CSM also is forecasting North American production to decline to 14.4 million units in 2008, the lowest level in nearly 15 years.

"Though most market metrics will be battered next year, our sales outlook is not as pessimistic as the consensus," Barker says "The unemployment rate is low, additional interest-rate cuts are likely, and GDP growth continues to exceed expectations. We also cannot underestimate the resiliency of consumers."

In the face of erratic market conditions, CSM again predicts market demand with pinpoint accuracy in 2007. With one month remaining, sales are on pace to come within a mere 0.05 percent of CSM's start-of-the-year industry forecast of 16.25 million units.