U.S. auto industry set for dip?

DETROIT — The U.S. auto industry is heading toward a nearly 30% decrease in sales by 2022, a Bank of America Merrill Lynch analyst predicts.

Softening vehicle sales since 2016 will continue as cyclical demand softens. And that will challenge automakers as they balance their core market of traditional vehicle sales with investments into the industry’s autonomous, connected and electric future, said John Murphy, a senior auto analyst.

“The industry is going through this process of what it is, what it should do and how it should operate, and what its current business strategy should be, and it’s a challenge,” Murphy said this week, citing his company’s annual “Car Wars” outlook. “You have to get your core business in great shape and that much better off than it has in the past so you can intake that success and fund the uncertain future.”

Despite pressures of lower volume down to approximately 14 million vehicles sold in 2022, Murphy predicted, automakers must resist temptations to lower prices as they had during the economic downturn in 2007, 2008 and 2009. Keeping vehicles at profitable margins will help investments in new technology — or else risk putting automakers behind their competitors that now include Silicon Valley tech companies with millions in their coffers.

Automakers are facing headwinds related to a trade war with China and threats of further tariffs up to 25% that could be implemented in November. The Chinese market also is facing oversaturation with predictions of a 7.5% decrease in sales this year after it began to shrink at the end of 2018.

New-vehicle introductions for now will lower the age of showroom offerings and drive market share, Murphy said, which will drive profits and stock prices.

There are 62 new-product launches expected on average over the next four years versus a typical 40, which is driving down showroom ages of vehicles to around 2 { years. Leading the way are Honda Motor Co. Ltd. and Korean automakers

“You’ll have a lot of good, fresh product that should help support demand,” Murphy said.

Ford Motor Co. also is wellpositioned with recent launches of the Ranger, Escape and Explorer, and the F-150 and Bronco still to come, Murphy said.

“They have really a massive, full schedule of very, very profitable vehicles,” he said. “Depending on how Ford manages its product and pricing, it could potentially be a $2 billion-plus profit stream. So Ford is really hitting stride with the right products at the right time.”

Although Fiat Chrysler Automobiles NV was an early leader in embracing trucks and crossovers, its replacement rate is below average and so is General Motors Co.’s. GM, however, has announced new crossovers in recent years and most recently its new pickups

"If you fast-forward to two or four years out, GM’s product cadence will pick back up,” Murphy said.