WardsAuto’s top-down view for the North American automotive industry over the next six years is predominantly optimistic, with light-vehicle sales averaging over 20 million units per year and production ultimately topping 18 million.
During that time, several new plants come into being, leading to an increase in capacity as the region becomes a bigger hub for exports.
Much of the outlook hinges on the assumption North America avoids a major economic slowdown during the period, with job and income growth continuing at a steady pace in the U.S. and possibly picking up speed in Mexico.
All three markets are forecast for growth in 2015 from 2014, and two – Canada and Mexico – will post record highs. This year North American LV sales will top 20 million units for the first time ever.
In the U.S., sales are forecast at 17.0 million units in 2015 and 17.3 million in 2016. But a record seven straight years of growth will satiate latent demand created by the recession, leading to a downturn in 2017 to 17.0 million, WardsAuto predicts.
Because the U.S. still accounts for 84% of North America’s sales, the decline will cause the region’s total volume to fall. A second straight downturn is forecast for the U.S. in 2018 to 16.7 million units before growth resumes in 2019.
After a record 1.26 million units are sold in Mexico this year, the country is forecast to continue as a harbinger of growth, with annual sales ranging between 1.3 million and 1.5 million units per year from 2016 through 2021.
Following record volume of 1.88 million in 2015, Canada is projected for slowdowns in 2016 and 2017, then returns to growth mode in 2018. For Canada, 2015 will be the third straight year the market has attained record volume.
Adding to the optimism is that the likeliest alternative scenario to the long-term sales forecast – whether results finish above or below the outlook for 2017 and beyond – is that the market goes higher. Several significant dynamics point to possibly larger volumes, one of them being stronger-than-expected replacement demand in the U.S. due to the high average age of vehicles on the road. Another strong possibility is automakers resort to deeper sales incentives to keep 2016’s volume rolling into 2017, if demand begins to waver.
Another focal point is demand in Mexico. Raw demographics indicate the market could reach 2 million vehicles per year. There are several societal issues to overcome for the industry to meet its potential, but if economic growth accelerates, and strengthens the middle class, demand could jack up well beyond projected totals.
Ironically, if the forecast holds firm and sales decline in 2017 and 2018, North American production will be impacted minimally.
With three new plants opening over the past two years and still ramping up to full production, plus two more plants coming on line next year and another in 2017, import replacement and export output will keep production levels more stable than sales on a year-to-year basis.
In fact, production is forecast to increase 1% year-over-year in 2018 to 17.7 million units, even though sales are projected to decline 2%. By 2021, with sales growing and added capacity from 2015 of 1.5 million units, production will total 18.6 million.
Another irony is that sales penetration of domestically made LVs won’t rise significantly, and in fact will decline in 2016 to 78.9% from 2015’s 79.1%. Partly behind the counterintuitive trend is that much of the aforementioned added capacity is for export outside North America. But a bigger reason is the influx of import competition planned for the market that will increase pressure on domestically produced vehicles.
Thus, despite the additional volume of six new assembly plants (including three in 2018/2019), competition from overseas-sourced vehicles will cap penetration of domestically produced models at 80% in 2021.
A caveat that could throw some of the aforementioned trends askew: What if export demand is below projections? Will manufacturers, especially those with new plants, utilize the excess by building more products for North America or be content to run their plants below capacity?