Pub. 18 2019-2020 Issue 2

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 I S S U E N O . 3 , 2 0 1 9 24 new jersey auto retailer Predicting new vehicle sales is, without question , an inexact science. There are a multitude of forces impacting the market on an ongoing basis. Some of these forces are pushing the market higher, while others are pulling it lower. Making sense of it all and coming up with an exact picture of where the market is headed is nearly impossible. But the basic direc- tion that sales are likely to head in is easier to identify. And right now, the majority of signs are pointing to a slowdown. Below is a rundown of the most salient factors ( positive and negative ) that are likely to impact the New Jersey light vehicle market in 2020. Key Factors Providing a Boost to New Vehicle Sales • Motivation to upgrade. The average age of vehicles on the road is more than 10 years old. Today’s new cars and trucks are far superior to the average 10-year-old vehicle. Advanced safety technologies, which were once expen- sive options exclusive to luxury brands, are now standard features on many mass-market vehicles. In addition, an ever-expanding array of new products, fulfilling every con- ceivable market niche and powertrain type, will continue to entice consumers into the new vehicle market. • Lower interest rates. After moving higher in 2018 and the first half of 2019, interest rates are starting to fall and are likely to move lower for at least the next 6 to 12 months. Declining interest rates, which lead to lower finance and lease payments, are clearly a positive for new vehicle sales. Weakening consumer affordability has been a negative for the market during the past 18 months, so the likelihood of lower interest rates is a welcome sign. • Strong labor market. The New Jersey unemployment rate was just 3.4% in August 2019, and total employment in the State has grown steadily. There are some heightened concerns about the economic outlook, but a healthy labor market is a definite plus for new vehicle sales. Key Factors Holding Back New Vehicle Sales • Economic growth is slowing. GDP growth has re- mained positive but is likely to decelerate over the next several quarters. The global economy is slowing con- siderably, and U.S. trade policy is impacting export-ori- ented manufacturing activity. Slower growth could eventually lead to f lattening incomes and rising unem- ployment, which are negatives for new vehicle sales. • New vehicle affordability is weakening. Higher new vehicle prices and sluggish income growth have contributed to make a new vehicle purchase more difficult for many consumers. Loan terms are getting longer and auto-related debt levels have risen during the past several years, signs of a new vehicle market that has reached its peak. • Consumer sentiment. Consumer attitudes have deterio- rated somewhat over the past few months. And although overall levels are still strong, there are plenty of things for consumers to be concerned about. Trade policy, the im- peachment proceedings, and the 2020 presidential election are just a few things weighing on consumers’ minds. GDP growth is positive and employment rates are low but concerns about the future can be a deterrent for making major financial purchases, such as a new vehicle. • Pent up demand is waning. The New Jersey new vehicle market posted steady and significant gains between 2009 and 2015, but there is a ceiling on how high sales can go. As shown on the graph, the market has plateaued during the past three years and is likely to drift lower in 2020. Bottom line: The inclination for many consumers to upgrade their current vehicles, combined with lower interest rates should help the market avoid a significant decline in 2020. But new vehicle shoppers have plenty of things to worry about and the market has likely reached its cyclical peak. New vehicle sales will likely move lower in 2020, but the market should remain above historical averages. New Jersey New Vehicle Market Predicted to Decline Slightly in 2020 BY JEFF FOLTZ 425770 358410 400314 419021 442933 482846 499556 518643 530532 516829 518939 517500 505000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 550,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Forecast 2020 Forecast New retail light vehicleregistrations New Retail Car and Light Truck Registrations in New Jersey - 2008 thru 2020