By Ray Birch
NEW YORK—With new car sales projected to decline in 2018, at least one person is worried automakers and lenders will try to sustain record growth and make the same mistakes that contributed to the financial crisis a decade ago.
Kevin Tynan, global director of automotive research for Bloomberg intelligence, told CUToday.info that among the factors contributing to the Great Recession were automakers and lenders artificially sustaining growth at levels that were not healthy for the industry.
“There are credit levels that need to be serviced and catered to and addressed now, and I think that is all fine. But I’d like to think this automotive market coming out of the financial crisis and getting itself built back up and really getting back to pre-crisis levels, won’t go right back and put foot on the accelerator and make the same mistakes, not learning anything from the crisis,” said Tynan. “Those mistakes were just this need for constant growth, easy money new loans, really aggressive terms, sort of look the other way on the type of decisions that make for a sound market. I would become worried if the market becomes too aggressive looking for that growth and not just taking healthy growth.”
Healthy Growth Still There
Tynan contends that while new car sales units are projected to fall next year below 2017 levels that are also expected to lag behind 2016 numbers, healthy growth for automakers and lenders will still be there.
“The sales numbers can be what the manufacturers want them to be,” said Tynan. “I think inventories are at a reasonable place now. I think the U.S. can comfortably—without causing a pull forward or bubble in the demand—see the high end of the 16-million-unit mark next year or possibly 17 million.”
That is coming off 17.4 million units in 2015 and 17.5 million last year.
Kevin Tynan
“To me, that is a little too much for 2018. There is some artificial demand being created at those levels,” said Tynan, who thinks the U.S. may hit about 17 million units this year. “But I’d like to see us come off the 17.5-million-unit levels a bit and get into comfortable inventory levels. I think 16.5-17 million is a real comfortable range where we will get good organic demand, good profitability for the manufacturers and not a ton of inventory backed up.”
But Tynan reiterated his concerns over carmakers pushing sales too hard.
“I just hope they don’t want that number to be too high—do we have to go toward 17.7 and 18 million units? That would be too much,” he said. “There were bigger problems in 2008 and 2009, but you saw what happened—demand got artificially high, around 17 million units from 2005-2007, and then the bottom fell out and the next thing you know you are in a 10-million-unit market and you are trying to rebuild.”
Good Or Bad Thing?
Looking at the profitability of carmakers, Tynan noted that GM last year showed $10 billion in operating income.
“If it is $10 billion again this year, is that necessarily a bad thing? No. If we drop from the 17.5-million-unit level but the profitability is still there and we can get to the next real growth phase, I think we are OK,” said Tynan. “You just worry that the manufacturers and the finance companies get so enamored with this concept of growth, and it becomes not really healthy growth, the opposite effect on the economy happens and the moves by the carmakers and finance companies become detrimental to business over the longer term. A reasonable amount of organic growth is still there. It’s the forced growth I worry about.”
Looking at lenders, Tynan has similar concerns that they want to make more auto loans to keep the books building at the current pace.
“Tying them back to the mindset of the manufacturers—I’d just like to see things not get too frothy, too aggressive with getting deals done, extending terms out too far, dropping standards,” said Tynan. “As long as there is a little discipline in lending, this will be sustainable for everyone.”