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Hitting the brakes on US autos

The slowdown in US auto sales and the heavy use of financing deals by car buyers have driven Ilana Elbim, Credit Analyst at Hermes Investment Management, to take a cautious stance on the sector.

The US automotive sector has shifted up through the gears since the 2008 financial crisis. Seasonally adjusted annual sales (SAAR) of new cars and light trucks reached a peak of 17.6m in 2016, higher than the 16.2m recorded in 2007 and 10.4m as the crisis unfolded in 2009.

By interrogating the data, we find that light trucks – including pick-up trucks, sports utility vehicles and crossovers – have led the ongoing recovery since 2015 as passenger-car sales began to decline (see figure 1). This demand was driven by factors including evolving consumer preferences, lower oil prices and manufacturers’ aggressive use of discount incentives.

Macroeconomic conditions also helped fuel the recovery, enabling automakers to offer financing to potential buyers at low interest rates and with longer terms. Immediately after the crisis, the proportion of vehicles bought through finance was in the mid-70% range but today it stands at 85%.

Figure 1. The US auto sector’s recovery has been driven by light-truck sales

Source: Bloomberg as at February 2018

Sales sputtering out

Yet vehicle sales in the US are slowing. Volumes may have exceeded 17m agai