Pre-Crisis Attitude towards Debt in the US Translates into Pre-Crisis Light Vehicle Sales

When the US recession hit at the end of 2008, many analysts rightly pointed to the overzealous growth of consumer lending as one of the underlying causes. Banks and consumers alike were caught up in a positive feedback loop, too distracted by the easy money all around them to assess the extent that they were over-reaching financially. As asset prices started to plunge, it became apparent who could really afford what, and banks, eager to stem their losses, began to tighten their credit-based lending. Gross autos lending fell by 16% in 2008 and, similarly, light vehicle sales plummeted by 18%. However, gross auto lending experienced a CAGR recovery of 6% from 2010 to 2013 and light vehicle sales have rebounded with a 10% CAGR over the same period. Moreover, a pre-crisis attitude towards debt is helping to drive light vehicle sales back to pre-crisis levels already in 2014.

Some thought that the widespread and substantial nature of the recession would have permanently changed attitudes towards consumer debt, resulting in a more cautious and less debt-reliant society. Whilst this became true to some extent, it appears as though consumers have finally stopped reeling, and instead of permanently adjusting to a new fiscal reality, most are simply adopting similar attitudes to those that they had before the credit crunch. This points to a less debt-averse society, and has positively impacted the forecasts across all of consumer lending, including autos lending. The CAGR for gross auto lending is now pegged at 7% from 2013 to 2018, which naturally bodes well for the light vehicle sales outlook.

From 1990 to 2007, light vehicle sales in the US equated to between 15% and 17% of the number of households with a disposable income over US$15,000, except in the recessionary period of the early 1990s and the boom years around the new millennium. However, despite a consistent recovery in demand since 2009, light vehicle sales have still not recovered to equate to at least 15% of the number of households exceeding US$15,000 disposable income. Interestingly, the number of these homes in the US never actually fell throughout the recession and if just 15% of these households had bought a new vehicle, 20 million more light vehicles would have been sold over the period from 2008 to 2013.

Euromonitor International projects 2.6% GDP growth in the US in 2014, which would be the second best economic performance since 2006. Moreover, the number of US households that have an annual disposable income over the US$15.000 level which has been identified as a key indicator of light vehicle sales continues to climb. In this environment of reasonable economic growth, rising consumer confidence, a declining savings ratio, a fresh willingness to take on debt and a growing pool of eligible households, light vehicle sales are climbing again in 2014. In the first four months of the year, 5.1 million new light vehicles were sold in the US – 3% higher than in the same period of 2013. However, sales were suppressed due to poor weather early in the year and y-o-y growth is therefore expected to improve. In fact, preliminary results for May confirm this, with sales for the month up 11% y-o-y according to Automotive News. Euromonitor forecasts that light vehicle sales will rise to equate to 14.6% of the number of households with annual disposable income over US$15,000 in 2014 and thus come in at 16.4 million units, up 5% on 2013. Crucially, this will be the highest sales volume since 2006 and, underpinned by a pre-crisis attitude towards debt, demand is therefore back to pre-crisis levels.


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