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Forecast says U.S. sales won’t reach pre-pandemic levels until 2023.

ALG Forecast Weighs Sales Recovery Factors

ALG says its most-likely scenario is U.S. new light-vehicle sales of about 12.6 million for 2020, down from a pre-pandemic estimate of 16.9 million. Its optimistic scenario is for 13.1 million deliveries.

By the end of this year, the “natural” level of demand should start to reassert itself and U.S. auto sales should be on their way to recovery – after a painful but relatively short couple of quarters, and with effects lasting through 2021 and 2022, according to TrueCar’s ALG.

“There are underlying fundamentals in our culture that would not allow auto sales to drop to the level we are seeing in the midst of this crisis,” Eric Lyman (below, left), chief industry analyst for ALG, says in an April 24 phone interview.

ALG presented its “natural demand” calculations in an April 23 webinar.

ALG says its most-likely scenario is U.S. new light-vehicle sales of about 12.6 million for 2020, down from a pre-pandemic estimate of 16.9 million. “With the movement restrictions and slowing economic growth, year-end targets have been substantially reduced,” ALG says.

That’s ALG’s “baseline” forecast. Its optimistic scenario is for 13.1 million deliveries in 2020, assuming government stimulus addresses unemployment and dealerships successfully adjust to social distancing and selling cars online. ALG’s “cautious” scenario is for 11.3 million if, for instance, a COVID-19 relapse means a “second round” of business restrictions.

The second quarter of 2020 should be the “most impacted,” says Morgan Hansen, ALG vice president-data science.

For 2021, ALG expects U.S. light-vehicle sales of about 14.6 million. Sales aren’t expected to recover to pre-pandemic levels until around 2023, ALG says.

ALG calculates what it considers “natural” demand by summing up the 275 million cars and trucks on the road, less annual scrappage, plus population growth and estimated new-vehicle sales.

It’s relatively simple math, Lyman says. Granted, there are underlying assumptions, based on predictable demographic numbers and a couple of ratios that have been remarkably steady over time.Eric Lyman ALG.jpg

For example, population growth is the subset of the population who are likely to be licensed drivers. That’s based on the number of individuals who turn 16 years old in a given year, plus the fact that about 87% of eligible people have a driver’s license. In addition, the average number of vehicles per licensed driver in the U.S. market works out to about 1.2.

In the short term, a small tweak to some of those big numbers produces a relatively large effect on the natural-demand estimate for a given year. For example, Lyman says that in an economic downturn the scrappage rate is likely to fall as people hang onto their vehicles longer.

“I do expect scrappage will go down this year, but there’s still going to be obsolescence,” he says. “The average vehicle age is something like 12 years old. How much older can the average vehicle get, when you’re already at 12 years old?”

Ultimately, it’s up to each owner to decide, Lyman says. “Someone with an 8- or 9-year-old vehicle that’s had a mechanical failure is going to have to look at their financial situation. They’re going to have to make a decision. Do they invest in this older car, or do they take advantage, say, of zero percent (interest) for 84 months, on a new car?”

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