A pair of economists who specialize in the automotive industry are offering differing opinions about the future of the business.
Sean McAlinden, the chief economist for the Center for Automotive Research, predicts that there will be a “significant” drop in car sale totals next year, and car prices will actually drop 5%.
Steven Szakaly, the chief economist for the National Automobile Dealers Association, meanwhile, is far more optimistic about the industry’s future.
“We’ve had six years of growth. It’s a fantastic time for the auto industry,” he says.
McAlinden pointed to longer-term loans as one reason why car sale numbers will decline. The longer the term on an auto loan, the more time that borrowers will be in a “negative equity” position, where the amount owed is more than the value of the car. This dynamic will depress sales that are based on higher trade-in values, the economist predicts.
Also, lease rates are at an all-time high, which could lead to a glut of used cars flooding the market and problems with residual losses. When a lender leases a vehicle, the lender estimates what the value of the car will be when the lease is over and the vehicle is returned. If the lender does not estimate the residual value of the car properly, it could take a loss when the car is returned and sold at auction. High amounts of residual losses are not something that is good for the industry.
Szakaly, meanwhile, says that the average new car buyer earns $80,000 per year and is 52 years old – a picture of stability. The industry should not be worried about leasing, Szakaly said. The market could even absorb an additional 1 million leases before worrying about residual values and an influx of used cars hitting the market.
In the coming years, at least one of them is going to be right.
