America Hasn't Even Seen The Real Automobile Recovery Yet
The rebound in auto sales has been one of the most robust factors in the U.S. economic recovery. Sales in the U.S. jumped 13.4 percent in 2012, and auto stocks zoomed higher in the second half of the year.
BofA Merrill Lynch analysts John Murphy and Elizabeth Lane put out a really bullish report on the future trajectory of U.S. auto sales this morning.
Despite the rapid growth in sales recorded last year, the BAML analysts say the U.S. auto sales recovery is only "in the early innings," and they predict the industry's run will continue all the way until 2018:
Ward's, BofA Merrill Lynch Global Research estimates
Murphy and Lane write that the main driver of their bullish forecast is the need for vehicle replacement:
We believe that we are still in the relatively early innings of a cyclical recovery in the US, and we estimate that the next peak in light vehicle sales will likely be in 2018, within the range of 17-18mm.
We believe that the ultimate underlying driver of vehicle replacement is miles driven, which is what we use to measure fundamental demand for travel utility. With miles driven trending around 3 trillion miles and an average vehicle lasting an estimated 200,000 miles over its lifetime (approximately 10,000-12,500 miles driven per year over about a 16-20 year useful life), we estimate that drivers in the US are essentially “using up” 15 million units-worth of travel utility on an annual basis.
With new vehicle sales running below this level since 2008, median vehicle age is accelerating rapidly, fueling the need for vehicle replacement.
Another driver of vehicle demand in the U.S. going forward, according to BAML, are the record numbers of new product launches expected from auto manufacturers over the next few years.
BofA Merrill Lynch Global Research
Murphy and Lane expect this "wave of fresh product" to "stimulate demand and get consumers into showrooms, especially as automakers continue to pick up marketing spending."
The biggest risk to their sunny outlook right now, write the analysts, is consumer confidence. Indeed, there has been a lot of discussion about the American economy's "moment of truth" – the point at which the impact of January tax hikes on consumers becomes clear.
For now, though, Murphy and Lane aren't worried.