Pub. 5 Issue 4

26 Issue 2 2020 Covering Data thru September 2020 Los Angeles Auto Outlook Los Angeles Auto Outlook Comprehensive information on the LA County new vehicle market FORECAST New Vehicle Market Shows Resiliency During Pandemic 2020 has been a year unlike any other for the Los Angeles County new vehicle market, with several, seemingly paradoxical events occurring at the same time. Despite a preponderance of bad economic news, the main factor restricting growth in the new vehicle market has been tight inventories, not weak demand. The latest evidence: September registrations were essentially unchanged versus a year earlier. And even with a 22.5% decline in year-to-date new vehicle sales, dealer- ship profits have for the most part, held steady. It’s unprecedented that these events would take place simultaneously. In times such as these, it is challenging to get a clear picture of what lies ahead for the county new vehicle market. But despite the elevated uncertainty, there are four identifiable trends that should dictate the course of the new vehicle market over the next year: • Pent up demand is growing. Pent up demand has grown signifi- cantly due to the sales slowdown resulting from the pandemic ( see page 27 ). These delayed purchases will occur at some point in the future and will give a boost to sales during the next several years. • Vehicle affordability will remain strong. Interest rates are low and the Fed has indicated that they will stay that way for an extended period, which is a key factor in helping to keep monthly lease and finance payments affordable. Incentives have eased during the summer as vehicle supplies have dwindled, but the manufacturers will almost certainly increase discounts once inventories improve. In addition, record high used vehicle prices have boosted vehicle trade in values. • Robust economic recovery will take a while. Employment lev- els and GDP growth have rebounded during the summer, but most economists believe it will take years, not months, for the labor mar- ket to return to full employment. Until then, the new vehicle market will be limited to about 85% of its baseline potential. • Pandemic will likely fuel increased desire for vehicle ownership. As discussed in last issue of Auto Outlook, new vehicle sales will get a boost by changes in consumer behavior brought about by the virus. Vehicle ownership provides freedom, independence, and a sense of personal control that is now front and center in peoples’ minds. These benefits are likely to impact consumer behavior, even when COVID-19 fades. County Market vs. U.S. Bottom line: There are some encouraging signs pointing to a recovery in the new vehicle market, but until the virus is no longer a factor, significant economic headwinds are likely to prevent sales from taking off. Auto Outlook predicts that 385,500 new vehicles will be regis- tered in the county this year, a 19% decline from 2019. Assuming there is not a major spike in the virus that would lead to the reoc- currence of widespread business closures, the market should move higher next year. However, even with the increase, registrations are pre- dicted to remain below 420,000 units, which is about 60,000 units lower than the total in 2019. Key Indicators for County New Vehicle Market Annual Forecasts 2020: 385,500 units Down 19% vs. 2019 2021: 418,000 units Up 8% vs. 2020 Percent change in new retail registrations YTD ‘20 thru Sept. vs. YTD ‘19 Historical Data Source: AutoCount data from Experian. Forecast projections: Auto Outlook. Los Angeles County: DOWN 22.5% U.S. Market: DOWN 16.4%  AUTO OUTLOOK — continued on page 27