Economics analysts have stepped forward to dismiss the claims that there is a car lending crisis, and to assert that concerns of a long-term threat to car sales from generational demographics are unnecessary.
The main points to their arguments are that, despite the last decade of record growing car sales, younger Americans play a small role in the larger auto industry. With millennials preferring services like Uber instead of purchasing, the older generations continue to buy cars. Some analysts are pointing the blame of the potential downfall of the auto industry at Uber and the youth despite these figures.
One such analyst with this viewpoint is Max Warburton, an analyst at Bernstein Research. This view clashes with the opinion of investment bank Morgan Stanley, that stated that car sales will dive between one and four million auto vehicles over the next three years.
Morgan Stanley also stated that the downward spiral could only be saved by another program similar to the government “cash for clunkers” subsidies.
Adam Jonas, an analyst at Morgan Stanley, is the one behind the idea of the one and four million vehicles per year being removed from U.S. sales forecasts.
“A stretched consumer, falling used prices, and technological obsolescence of current cars are ingredients for an unprecedented buyer’s strike,” said Jones.
The idea that the consumer base is too stretched for sales to grow comes from fact that the younger generation is not as financially powerful as their older counterparts. So far the average car buyer is estimated to have $17,966 in auto debt , and with an already burdening student loan debt, that can weigh a consumer down.
Jonas’s forecasts for 2017 look relatively poor, but not majorly so, with 17.3 million automobiles predicted as the annual car sales. This is a decrease from the previous estimate of 18.3 million.
However, following that, he predicts a spree of rapid declines, saying, “Our 2018 forecast is cut to 16.4 million from 18.9 million, implying a further 7 per cent decline from 2017 to 2018. Our 2019 and 2020 forecasts are cut to 15 million in both years from 19.2 and 18.7 million.”
In response to this, Bernstein’s Warburton had a harsh critique. He acknowledged that the market was slowing and was likely past its peak as both lending conditions tightened and second-hand prices fell.
“But (negative news) has somehow been extrapolated into a U.S. auto market crash, with some followers talking of a ‘sharp downturn’ and slashing earnings estimates. This view is far too bearish. In fact it is economically illiterate,” said Warburton.
Warburton doesn’t dispute that there are some problems with auto lending, but this is because of lenders tightening credit availability, he argues. Used car prices themselves have stabilized. The demographics suggest that long-term demand remains healthy, and more drivers licenses mean more miles driven.
“The media loves to obsess about young people not learning to drive and becoming addicted to Uber, (but) older people are continuing to drive longer and later than ever, and it’s old people who buy new cars, not the young,” he said.
He agrees that the U.S. market conditions are getting tougher, and maybe a little rocky, but at a rather gentle rate.
“Talk of a big U.S. volume slump is silly,” he added.