A Cox Automotive forecast estimates the seasonally adjusted annual rate (SAAR) for December new-vehicle sales at 17.2 million units.

The forecasted number is down from November’s 17.4 million units, and last year’s pace of 17.3 million units.

Despite the forecasted SAAR declines, healthy December sales are expected to be an exclamation point on what has been a forecast-beating year for the auto industry, Cox Automotive said.

When the final 2018 numbers are counted, U.S. auto sales will finish near 17.2 million units, a modest uptick from last year. It will be the fourth year in a row that sales topped 17 million units, above most forecasts.

“There is no denying 2018 was a very good year for the U.S. auto industry,” said Charlie Chesbrough, senior economist at Cox Automotive. “A SAAR above 17 million signals a very strong market. Many economic factors pointed to a slowdown in the second half of the year, but sales remained in high gear, and it looks like they will finish that way as well.”

Looking back, 2018 has been a yearlong roller-coaster ride that ended with more ups than downs.

“Retail demand has actually been stronger in the second half of the year, though down from last year,” said Jonathan Smoke, chief economist at Cox Automotive. “We think that’s a result of low unemployment and tax reform leaving consumers confident and flush with cash. And this holiday season, Santa is delivering lower gas prices to give even more spending power. Credit is widely available, including for some subprime borrowers. Rates have stabilized and softened a bit. If December incentives are focused on key segments such as SUVs, where there has been growing supply, we think more buyers are ready and happy to step in.”

Auto sales in December likely will reflect the major market trends that Cox Automotive has been tracking throughout the year. Many of these trends, however, are temporary influences that drove the 2018 market higher than anticipated. They include:

• Strong fleet sales – Corporate tax reform had a positive effect on fleet sales in 2018. With more money to spend, some companies moved to update their fleets. Commercial fleet sales were strong throughout 2018, and rental fleet volume was up more than 100,000 units versus 2017.
• Tesla sales growth – Tesla ramped up production of the Model 3 quicker than anticipated, driving electric-vehicle sales volume in 2018 to all-time highs. By most industry estimates, Tesla will sell more than 100,000 Model 3 sedans in 2018. Much of that incremental growth was expected in 2019. With Tesla sales in California leading the way, electric-vehicle market share in the United States was 2.2 percent of total sales in November 2018, according to Cox’s Kelley Blue Book analysts, beating the full-size car segment.
• Pull-ahead sales – Research by Cox Automotive indicates that dealers and consumers are acutely aware of market factors that likely will drive vehicle prices higher in the future. Two key factors – continual threats of new-vehicle tariffs and real moves by the Federal Reserve to increase their discount rate – have led most people to believe new vehicles will be more expensive in the future. A buy-now attitude likely drove sales higher in 2018, particularly in the second half.
• Car-segment decline – Recent monthly data shows passenger-car sales continue to decline at double-digit rates, dragging down the market’s overall pace. The 2018 share is now averaging 31 percent. In fact, the top five all-time lowest car-share months occurred since July 2018, with the all-time low of 29 percent in November. Passenger-car sales in 2018 are at the lowest volume in 40 years, even lower than 2009 during the depths of the Great Recession.

2019: Profitable Year with Lower Volume

Maintaining the current sales pace into 2019 will be a challenge as the source of sales changes. With interest rates expected to rise further, retail sales likely will fall in 2019. Cox Automotive currently forecasts 2019 light-vehicle sales to finish near 16.7 million units. Although a decline in volume is expected, high transaction prices and a favorable product mix suggest a profitable year is ahead for the industry.

“Federal Reserve monetary policy of increasing interest rates, up nearly 225 basis points since 2015, is negatively impacting vehicle affordability,” said Chesbrough. “And, when coupled with weakness in home construction and volatility in the stock market, these are growing headwinds for the U.S. auto market.”

According to Smoke, “The main negative has been the volatile stock market and the related increase in negative news about the future economic situation. According to a Wall Street Journal/NBC News poll released this week, one-third of Americans say the economy will get worse in 2019, the highest level of wariness in five years.”

In addition, the positive effects tax reform had on auto sales in 2018 are not expected to continue into 2019.

One major unknown in 2019 is whether car sales will continue to decline.

There are changes within the used-car market that could alter new-car sales trends. Auction prices for used cars had been declining for years due to consumers’ preference for CUVs and an over-supply of off-lease cars. Inexpensive competition from used cars has contributed to the collapse in new-car demand.

However, used-car prices are rising at a quicker pace than some other used segments, according to Cox Automotive. As a result, used cars are not quite the bargain they had been earlier in the year, and some car-segment buyers may decide to buy new instead.

Cox Automotive’s brands include Autotrader, Dealer.com and Kelley Blue Book.