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Tuesday, 17 March 2020 21:28

ALG Provides Updated 2020 New Vehicle Sales Forecast Based on Projected Short-Term and Long-Term Impact of COVID-19

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ALG, a subsidiary of TrueCar, and the industry benchmark for determining the future resale value of a vehicle, is providing an updated 2020 new vehicle sales forecast to account for the quickly evolving Coronavirus pandemic and the latest economic outlook.

ALG projects that in a quick recovery scenario, where the economy and auto industry recover by the end of April 2020 back to levels prior to COVID-19 disruption, new vehicle sales will reach 16.4 million, down -500,000 vehicles, or -2.9% from ALG’s initial 2020 forecast and down -3.8% from 2019 sales.

 

In a scenario where COVID-19 is prolonged with a longer-term economic slowdown, ALG forecasts that new light vehicles sales will reach 14.5 million, down -2.4 million, or -14.2% from ALG’s initial 2020 forecast and down -14.9% from 2019 sales.

 

“In the rapidly moving, highly volatile global economic environment caused by the COVID-19 pandemic, we believe it’s prudent to provide a revised range of auto industry projections to new vehicle sales for 2020. The range is based on various scenarios provided by expert third party forecasts of macro-economic impacts from the Coronavirus outbreak,” said Eric Lyman, chief industry analyst for ALG.

 

“A quick recovery by the end of April would lead to roughly half a million lost sales, while a prolonged slow down through the end of the year would result in a nearly 15% year-over-year sales decline in 2020," Lyman said. "While forecasts are changing day to day, our current likely scenario has new vehicle sales for 2020 landing in the mid-15 million unit range.”

 

ALG is also reducing residual values in its latest Residual Value Book. This update is based off current third-party economic outlooks in COVID-19 impact and other key factors such as the stock market declines and drops in oil futures.


“Short-term market volatility does not necessarily translate into long-term changes,” said Morgan Hansen, VP of data science at ALG. “While ALG expects a short term drop of roughly 2 percentage points of MSRP in wholesale used market values, our benchmark 36-month forecast only expects a decline of 0.7 ppts of MSRP. These values are based on current expert third party macro-economic forecasts that put the probability of prolonged economic downturn risk at 50%.”

 

Key impacts of residual value reductions are COVID-19, stock market performance and drops in oil futures:

 

  • COVID-19 will have impacts on both vehicle inventory availability and consumer confidence, affecting supply and demand.

  • COVID-19 will have immediate short-term impacts due to reduced income and reduced commerce in general.

  • In the extreme case, COVID-19 could also halt sales in the short term if auction houses and transportation companies have temporary shutdowns, but this is not reflected in the current ALG longer term outlooks.

  • Long-term, COVID-19 and poor quarterly results will most likely result in higher unemployment rates through 2020 and into 2021. Prolonged bear markets generally lead to more layoffs.

  • Low oil prices have traditionally been good for the economy, but increases in domestic oil production and extremely low prices are detrimental to the U.S. economy in the short term.

  • Government intervention strategies and election results will impact the U.S. economy throughout 2020 regardless of how quickly COVID-19 recedes.

 

Change in percent of MSRP:

 

  • The impact varies by segment and term of the forecast. As probability increases, the impacts are greater in the shorter term with positive recovery forecasted for the long term.

 

ALG will update its forecasts in response to major new developments.

 

Source: ALG

 

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