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NADA Chief Economist Maintains 16.94 Million-Unit Prediction

March 31, 2015

NEW YORK — Despite slower-than-expected economic growth during the first three quarters, the National Automobile Dealers Association maintained its 16.94 million-unit forecast for 2015 new-vehicle sales — a 3.1% increase from 2014 if the prediction is realized.

Speaking yesterday during a press briefing at the NADA/J.D. Power Automotive Forum, Steven Szakaly said improving economic conditions, new vehicles entering the marketplace and pent-up demand will continue to drive U.S. auto sales this year.

“While economic growth faltered slightly in the first quarter, the outlook for the rest of 2015 is still strong,” Szakaly said.

The association’s chief economist said the gross domestic product (GDP) grew by only 2.1% in the first quarter, noting that growth was hurt by the West Coast port strike, harsh weather conditions in the Northeast and Midwest regions, and declining oil investments. “Car sales will continue to outpace overall economic growth,” he said, noting that March sales should show a seasonally adjusted annual rate (SAAR) of 16.9 million after strong January and February sales.

“A strong lineup of attractive new vehicle entering the market with the latest technology, greater fuel efficiency and improved safety features are appealing to car shoppers who are ready to replacing their aging vehicles,” Szakaly added, noting that more than 60 all-new and redesigned vehicles will be introduced to the public at the New York International Auto Show this week.

The economist’s projection for GDP growth is 2.9% for this year, which is down from his 3.1% growth projection earlier this year. Last year, GPD grew by 2.4% with inflation remaining stable at 1.7%.

Szakaly said he doesn’t expect inflation to be a problem moving forward, as strong U.S. dollar and downward pressure on commodity prices will keep inflation well below the Fed’s official target of 2%. He also expects strong employment growth will lead to a rise in wages.

“Wage and income growth will be critical to maintaining the momentum both for the U.S. economy and for motor vehicle sales for the rest of 2015 and on into 2016,” Szakaly said. “Housing also has proven surprisingly resilient thus far in 2015, which is a good sign in terms of the underlying strength of the recovery.”

Low oils prices will also continue to translate into saving at the pump, which should also help to accelerate vehicle sales this year. Stable gasoline prices are also driving a resurgence in demand for SUVs and CUVs as well as pickup trucks, which are taking market share from small, midsize and even luxury vehicles.

The NADA projects that light trucks will make up 56% of the new-vehicle market this year. Szakaly, however, said low gasoline prices are a double-edged sword. “They help consumers but they are hurting investment and employment in one of the fastest growing sectors in the U.S. economy,” he said.

Investments in shale and deep water fields are expected to fall throughout 2015, as low prices force drillers to reconsider or slow their investments. This will not only negatively impact states dependent on shale drilling and investment, it will also hurt industries that make up the oil and gas service sector. The NADA expects oil prices to hit an average of just less than $70 a barrel through 2015.

But aside from driving consumer spending, low oil and gasoline also limit inflation, Szakaly noting that low inflation will keep interest rates low. “We are definitely revising our outlook for the Fed raising rates,” he said. “It will likely happen in September.”

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