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
|
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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