RETAIL % GDP
28 28 27 27 26 26 24 24 23
2009
US AUTO SALES & RETAIL SALES AS % OF RETAIL SALES 2009 – TO DATE
RETAIL % GDP AUTO % GDP
2010
Source: The pH Report, US Census Bureau, US Federal Reserve
consumption is around 70 % of GDP, this boost from auto sales and the recovery in housing starts has obviously been a critical component of GDP growth.
Unsurprisingly, perhaps, the consensus view of most forecasters is that auto sales will only plateau at today’ s levels, rather than decline. We do not share this view, given today’ s underlying weakness in the auto market: As Fitch pointed out in August, used vehicle values are under increasing pressure as the large volumes of vehicles sold on finance / lease since 2010 come into the market In turn, this increasingly attractive pricing for used cars has forced incentive levels for new car sales back to levels seen at the bottom of the financial crisis December incentives were 20 % higher than in 2015, averaging $ 4k per new car
2011
2012
2013
2014
2015
US HOUSE STARTS: SINGLE FAMILY & MULTI-UNIT SPLIT 1959 ONWARDS
2500
2016
▲ Chart 7 Auto sales have been critical to the recovery in retail sales
6
5
4
3
2
1
0
AUTOS % GDP
▼ Chart 8
The ratio between single and multi‐home starts has returned to pre‐SuperCycle levels where the average term when bought via a franchise dealer was 66 months.
Significantly, 2016 auto sales only just managed to increase( by 0.1 % versus 2015) despite the increase in incentives and the continuing rise in loan amounts, monthly payments and payment terms. Our concerns over the outlook for 2017 are increased by Experian’ s report that delinquency levels are rising at both 30 days and 60 days.
Worryingly, the consensus is even more optimistic about housing starts, which it expects to rise by around 11 % to 1.29m in 2017. This seems rather like wishful thinking, given the major increases that have taken place in interest rates. The optimism of groups such as the Mortgage Bankers Association( MBA) also contrasts with their expectations for home loan refinancings: 30 million home refinancings have been completed since 2009, worth $ 8.2tn, and these have clearly provided major support for consumer spending The average refinancing value was $ 273k in 2016, and the total value of refinancings rose 16 % to $ 901bn The MBA expects rising interest rates to halve this value to $ 479bn in 2017
MULTI-UNIT
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46
Leasing and financing deals also continue to play a critical role in maintaining auto sales. Experian data shows 86 % of new cars were bought with financing in Q3 2016, and the average loan amount reached a record high of $ 30k. Loan terms continue to stretch out in consequence, with the average at 68 months. As we have noted before, this trend essentially cannibalises the future market, as buyers in 2016 won’ t be back in the showroom until 2022. Affordability is also an issue in the used car market,
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’ 000
2000
1500
1000
500
0
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1959 |
Source: The pH Report, US Census Bureau
1964
1969
1974
1979
SINGLE HOME
MULTI-UNIT AVERAGE:
1959 – 1986 = 34 % 1987 – 2010 = 21 % 2011 – 2016 = 33 %
1984
1989
1994
1999
2004
2009
SINGLE STARTS DOWN BY 50 % FROM 2006 PEAK
2014
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