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Auto sales shift into lower gear in June
NEW YORK (7/2/14)--The U.S. auto market, after a strong post-recession recovery, could soon show signs of tapering, according to a new study from AlixPartners.
 
Since the industry's restructuring a few years ago, the U.S. auto market has been very strong, and automakers and suppliers alike have on average been enjoying ever higher revenues and strong, if flattening, profit margins. However, whereas some other forecasters see industry sales climbing quickly past 17 million units annually in coming years, the AlixPartners study forecasts industry sales in the United States of a more-modest 16.3 million units this year.
 
Among the reasons, says the study, are that, when taking into account "pulled-ahead" sales in the decade of the 2000s, the U.S. industry is actually on track to pass its long-term sales trend line this year--and that long-term, fundamental trends are, despite what some may think, still very meaningful in the auto industry.
 
The study also points out that the vehicle-renewal rate in the United States has been on a long-term decline, approaching replacement levels, and that vehicle-usage rates are also declining--both in part due to aging Baby Boomers on the one end and on the other younger Americans, whom AlixPartners has dubbed "Generation N," for neutral about driving. These factors have increased each year in recent years, says the study, even as the economy has improved.
 
Overarching all of this, the study also points to what might be a current "QE Bubble," or a liquidity bubble underpinned by the Federal Reserve's current quantitative-easing actions, a program many economists are predicting will begin unwinding in earnest starting next year--which would likely lead to an increase in interest rates.
 
If consumer interest rates were to rise 3 percentage points--about the normal historical increase when rates go up in a managed fashion after a prolonged downward trend--that would translate into $2,500 less purchasing power for car buyers, according to the study. If they were to rise 7 points, which is far less than the rise in the early 1980s recession, that would mean $5,250 less purchasing power.


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