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Tags: Goldman Sachs | Jan Hatzius | car | sales

Goldman Sachs: 4 Reasons Why Demand for Cars Will Weaken

By    |   Thursday, 07 May 2015 11:05 AM

Consumer demand for cars may be 12 percent to 15 percent weaker than sales forecasts suggest for the next few years, said Goldman Sachs Group Inc.

The bank cites four reasons to question whether sales will grow more than the current rate of 16.5 million to 17 million cars a year. Other data suggest enough demand for only 14 million to 15 million.

“The current sales pace already looks high relative to the medium-term fundamentals,” Jan Hatzius, chief economist at New York-based Goldman, said in a May 6 report obtained by Newsmax Finance. “The GDP implications of our analysis are negative but not huge.”

Gross domestic product, a measure of a country’s total economic output, may be 0.05 percentage point less a year if Goldman's assumptions become reality. The U.S. economy grew by 0.2 percent in the first three months of this year, according to preliminary readings that are likely to be revised downward because of the trade deficit.

Four Reasons for Decline

First, the national scrappage rate, or the percentage of vehicles sent to the junkyard every year, has fallen steadily as people keep their cars on the road longer.

“That trend stands at 5 percent or a bit less, which implies replacement demand of 12.5 million to 13 million per year given the current auto stock of just under 260 million,” Hatzius said. That number of total cars may grow by 1.5 million to 2 million a year, according to Goldman’s analysis.

Second, there has been a steady fall in licensed drivers since 2008, when the economy shrank the most since the 1930s. Even though the adult population is estimated to grow 1 percent a year, according to Census Bureau estimates, the percentage of people with a driver’s license is falling.

“The share of licensed drivers in the adult population has fallen by almost 0.5 percentage point per year since 2008,” Hatzius said. “There has been a long-standing trend decline in licensed driver shares among younger age groups.”

Adjusted for patterns in the economic cycle, the percentage of people who bother to get a license will fall by 0.2 to 0.3 percentage point a year, Goldman estimated.

Third, the ratio of cars to licensed drivers topped out at about 1.23 in the early 2000s. If current downward trends persist, the ratio will keep sliding from about 1.17 in 2013, the latest data available.

“We would pencil in a mild downward trend of perhaps 0.1 percentage point per year in coming years,” Hatzius said.

Finally, many people will continue to buy homes but find ways to get around without a car. They may telecommute to work, take mass transit or use ride-sharing services like Uber.

“Long-term population growth is likely to be much more tightly linked with housing demand than with auto purchases,” Hatzius said. “After all, everyone needs a place to live, but more people are finding that they do not need a car.”

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Consumer demand for cars may be 12 percent to 15 percent weaker than sales forecasts suggest for the next few years, Goldman Sachs said.
Goldman Sachs, Jan Hatzius, car, sales
Thursday, 07 May 2015 11:05 AM
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