Peak Vehicle Sales?

It appears very likely that, in 2016, U.S. sales of motor vehicles will exceed 18.0 million, a new record, handily topping the previous record of 17.35 million vehicles in 2000.

This is very good news, supporting an improving economy and providing the background for strong wage gains for auto workers.  Unfortunately, history tells us that motor vehicle sales are cyclical.  Whether 2016 sales will prove to be a cyclical top, or close to the top, does not alter the odds against continuing near term growth.

Investors should note that, for more than a year, domestic auto industry stocks have not been particularly responsive to repeated monthly sales records.  Stock prices tend to respond to projected growth.  Faced with a potential slowing in demand and new, more costly labor contracts, investors may choose to look else where.

The big question is what will consumers buy next?  It has been well established that most people maintain their spending but move between categories.  Strong vehicle sales obviously reduce the amount of money available for other purchases.  If new car sales falter, what will attract consumer dollars next?

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®