The US auto industry’s swift recovery from the worst recession since the Great Depression is being lauded as strong despite increasing challenges. One recent difficulty, however, is a US government-imposed target that automakers achieve average fuel economy of 87.7 kilometres per gallon across their ranges by 2025. Younger buyer trends and a possible rise in interest rates also pose risks.

In late November, the National Automobile Dealers Association (NADA) projected sales of new vehicles in the US could approach 17 million in 2015. "Rising employment and wages, continued low interest rates and lower gasoline prices all signal an increase in new light vehicle sales in 2015," NADA chief economist Steven Szakaly told a press conference. According to Mr Szakaly, the US auto industry remains on track to sell 16.4 million light vehicles in 2014, the fifth straight year of rising demand. That figure represents a 5.1% increase from 15.6 million sales in 2013.

Advertisement

On the rise

Washington, DC-based NADA, with nearly 16,000 US members, upped its earlier 2015 forecast of 16.8 million vehicle sales, citing an improved economy. NADA members operate about 32,500 US franchises, valued at a total of more than $1000bn per year.

Some industry insiders say the recovery will continue even if US interest rates do rise next year, and changing transport preferences due to environmental concerns do not seem to have dented their confidence. Mr Szakaly said NADA now expects new unit sales in 2015 to hit 16.94 million.

"The economy will continue to build on the solid growth established in 2014, and we also expect the fundamental conditions to improve in the year ahead," Mr Szakaly added. "GDP will grow at 3.1% in 2015, with the potential for growth to exceed our forecast."

Global drive

Global auto sales also look robust for 2015 and beyond. “The strong industry recovery brings new energy to the global market,” says Michael Robinet, managing director of IHS Automotive, a consulting research firm based in Southfield, Michigan. “It’s an exciting time again for the automotive industry – in North America and globally.” IHS Automotive expects 21 new programme launches in 2015, building to a near-record of 37 in 2018, based on current manufacturing outlooks.

The North American market is returning to stability, with record sales by most automakers, according to Mr Robinet. Indeed, IHS projects global sales of 106 million vehicles in 2021. Mr Robinet adds that light vehicle production could reach 106.3 million units globally and 18.5 million by 2021 in North America.

In November, LMC Automotive of Troy, Michigan, projected 16.4 million unit sales for light vehicles in 2014, a 5% increase on 2013 levels. LMC also forecast light vehicle production could reach 17.3 million units by 2015.

But there are risks to the forecast. “An underperforming global economy would put pressure on the US and autos would be susceptible to a pullback,” said Jeff Schuster, LMC's senior vice-president, earlier in 2014. In August, Mr Schuster predicted US sales could grow between 1% and 2% over the next few years and could reach 19 million in 2021. New vehicle sales rose 7.5% in the US over 2013.

Mr Schuster and Mr Robinet spoke at management briefing seminars sponsored by the Center for Automotive Research, which provide annual executive industry updates.

The price of progress

The expensive technology needed to meet the US government's fuel efficiency regulations could add thousands of dollars to the cost of a new vehicle, some analysts suggest. Many electric vehicles are already beyond the reach of the average consumer and comprise less than 3% of total sales in the US.

At the same time, other shifts are occurring – such as pent-up demand for replacing ageing vehicles in US households. “Those new cars and trucks are likely to draw more buyers as Americans’ vehicles age to about 11.5 years on average,” Mr Szakaly noted.

US automakers also cast doubts on a faltering economy and decreasing demand for new cars and trucks. GM, revived after reaching the brink of extinction in 2008-09, remains cautiously optimistic. The automaker, vying with Toyota and Volkswagen for global sales dominance in the past few years, stood at number three globally in November.

“The current cycle takes longer for households to feel better about the present situation relative to future conditions,” David Teolis, GM's senior manager, economy and industry, told an auto outlook conference with the Federal Reserve Bank in Detroit. “A further upside regarding the present situation should favourably spill over into improving conditions for new vehicle purchases. Consumer confidence still has an upside.” 

Some major US dealer groups also are seeing built-up demand in their economic regions. Butch Hancock, managing partner and general manager at Kenny Kent dealerships in Evansville, Indiana, does not see much pushback in his part of the US mid-west.

Kenny Kent’s Toyota and Chevrolet dealerships are part of the Van Tuyl Auto group, the largest privately owned automotive group in the US. Van Tuyl executives recently signed an agreement with Warren Buffett’s Berkshire Hathaway conglomerate holding company. Pending its approval early in 2015, Van Tuyl will become richer and even larger. Mr Buffett is the second richest person in the US.

Reaching a peak?

But what is next for the auto-driven US economy? Shifting tastes and a trend toward fewer vehicle purchases among the environmentally minded millennial generation could bring some changes.

In February, Bloomberg News described an approaching “peak car era” due to congested global cities. “In the globe’s growing megacities, pollution and gridlock are putting a damper on driving,” wrote reporter Jeff Green and editor Keith Naughton. “In India, some commuters are leaving their cars at home to avoid traffic snarls and long prowls for parking. More young Americans are forgoing the dream of auto ownership for public transport, bikes and vehicle-sharing. Cars on the road are lasting longer than ever,” they added. 

The duo claimed that the world will reach "peak car" – when annual global sales growth will top out – in the coming decade, a prediction backed up by several auto-industry analysts. One of them, IHS Automotive, sees annual sales topping out at 100 million within that time.

However, the 'peak car' theory is not backed by the world's automakers. IHS claims there are plans to produce more than 120 million vehicles by 2016 – nearly 50% more than 2013’s worldwide sales of 82 million.