Pub. 14 2015-2016 Issue 4

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 11 new jersey auto retailer W W W . N J C A R . O R G we think year seven will be just as good, with sales rising to 17.7 million. But 2016 will mark a turning point and that means rising incentives in an environment of declining industry profits. In particular, low oil prices, while a boon to most of the U.S., will hit certain regions hard, like Oklahoma and the Dakotas. Falling oil investment will also lead to lower growth, overall, for the economy. Of course we now expect no increase in interest rates, which should help keep vehicles affordable and there has been a rise in wages the last few months. Those wages have been a concern, at least for U.S. domestic demand. The lack of wage and income growth has hurt spending. But if we continue to see a steady rise, in the 2.0-2.5% range for 2016 many of the headwinds coming from foreign markets will be relieved. Finally, let’s not forget the U.S. housing market. Growth in multi- family housing has continued to rise but single family homes remain well below trend. In fact, 2015 should have been a major demographic shift point but delays by millennials in forming households (i.e. getting married) and having children means that we will likely have to wait until the end of 2016 or even 2017. What we see for the U.S. is that this year is really about navigating the potential pitfalls and economic crisis emanating from China and the emerging markets spillover. Weakness abroad and in commodities will help keep a lid on U.S. inflation, allowing the Fed to hold off on raising rates and lowering prices for consumers. The converse, of course, is that global companies will face a squeeze on profits with automotive directly in the crosshairs of a slowdown of China’s economy. In spite of this, our outlook is positive. We view the chance of a recession as very low, less than 10%, and still expect sales to rise to 17.7 million for 2016. We do think this year will see rising incentives, particularly in the car segments, as crossovers, pick- ups, and SUVs dominate in a low gasoline price environment. As for the long term future, by all accounts this should be our last year of sales growth but we do not expect a crash like 2008- 09. Rather, we see sales at a plateau for the next few years, still healthy but not quite record setting. Steve Szakaly is the Chief Economist at NADA. He can be reached at ssza- kaly@nada.org .