The deepening downturn in new housing starts, combined with soaring consumer debt triggered by rising adjustable rate mortgages (ARMs), will continue to put the brakes on U.S. light vehicle sales through the remainder of 2007, according to an analysis by automotive market forecasting firm CSM Worldwide. During a recent CSM Insider Series briefing for suppliers and auto supplier executives, CSM analysts reaffirmed their prediction that consumer budgets stretched to the breaking point as a result of the mortgage crunch will drag sales down to 16.2 million units this year - 350,000 fewer vehicles than in 2006. It would be the lowest sales level since 1998.
Auto sales historically correlate closely to housing starts, which were down 26 percent for the first six months of 2007 compared to the same period a year ago. July was down a further six percent to the lowest level in more than 10 years. "We looked at data going back to 1970, and it's remarkable how closely light vehicle sales mirror housing sales, particularly new housing starts," said CSM Senior Economist Charles Chesbrough. "With many consumers having a harder time getting mortgages or coping with higher payments from their adjustable rate mortgages, there will be a considerable impact on light vehicle sales. Weak sales of existing homes and declining home values also are dampening consumer spending, leaving less money available for vehicle purchases."
Chesbrough also noted that overall consumer debt is up 13 percent over the past five years, and mortgage debt has soared 23 percent during that period. Consumers who opted for ARMs to get into homes they otherwise couldn't afford now find themselves stretched beyond their means.
According to Joe Barker, CSM’s Senior Manager of North American Vehicle Sales Forecasting, sluggish demand for automobiles will recover no sooner than the fourth quarter of 2008. Market fundamentals have deteriorated and will need at least a year to rebuild. The fast-growing crossover segment, which has enjoyed a sales surge of 82 percent over the past five years, will grow another 78 percent by 2013, largely at the expense of traditional body-on-frame SUVs.
"The crossover market already is as large as the traditional SUV market during the truck boom of the late-1990s and we only have seen the tip of the iceberg," said Barker. "Favorable demographic trends and another wave of new products will lift crossover sales from 2.8 to 5.0 million units in the foreseeable future." Barker also noted that CSM expects sales of small cars and luxury vehicles to grow at a healthy clip.
Another notable item from the CSM Insider briefing is that North American light vehicle production is expected to fall to 15.1 million for 2007, down from just over 15.3 million a year ago. Most of the downturn occurs at GM, down 9.5 percent, and Ford, down 6.1 percent. Despite lower overall production, several OEMs will boost production: Chrysler by 3.8 percent, Toyota 7.7 percent, Honda 3.4 percent and Nissan 4.4 percent.
CSM Worldwide provides trusted automotive market forecasting services and strategic advisory solutions to the world’s top automotive manufacturers, suppliers and financial organizations. CSM Worldwide covers the global automotive environment from Detroit, Grand Rapids, São Paulo, London, Paris, Frankfurt, Budapest, Delhi, Bangkok, Shanghai and Tokyo.
For more information please call (248) 380-9000, Email info@csmauto.com or visit http://www.csmauto.com.
