WASHINGTON—Continued economic improvement, low interest rates and cheap gasoline will help new-vehicle sales rise more than 3 percent to nearly 17 million units next year—the most since 2005—according to forecasts from the National Automobile Dealers Association.

 

NADA sees U.S. new vehicle sales growing to 16.9 million units in 2015 from a projected 16.4 million this year, as U.S. gross domestic product grows 3.1 percent, compared with an estimated 2.1 percent this year.

 

Through October, the industry sold 13.7 million vehicles in the U.S., up 6 percent over the same period of 2013.

 

But sales will begin to plateau or even decline after 2015 as the growing number car buyers with five- to seven-year financing deals delay their next purchase to pay down those long-term loans, NADA's chief economist said.

 

The monthly U.S. adjusted sales rate has topped 16 million vehicles for eight months in a row, and in August surpassed the 17.5 million mark, according to the Automotive News Data Center. The October rate was 16.5 million.

 

NADA projects that the economy will add some 242,000 new jobs per month next year, while consumers' disposable income rise by 2.5 percent. And while the Federal Reserve is expected to raise interest rates in 2015, NADA expects those increases to be marginal, allowing the low-interest-rate loans that have fueled auto sales to continue.

 

"Rising employment and wages, continued low interest rates and lower gasoline prices all signal an increase in new light-vehicle sales in 2015," Steven Szakaly, NADA's chief economist, said in a statement today. "The economy will continue to build on the solid growth established in 2014, and we also expect the fundamental conditions to improve in the year ahead."

 

Topping-out next year?

 

Szakaly said that for U.S. sales to top 17 million in 2015, auto makers would have to spend more on incentives and sell more cars to younger buyers than they have this year. More U.S. buyers need to return to the labor force, wages have to grow and interest rates need to remain stable for sales to top 17 million next year, he said.

 

"Everything needs to go exactly right in terms of both the US economy and of course in terms of the global economy, and it's just unlikely to align that way."

 

U.S. auto sales are also unlikely to sustain the growth seen during the post-recession recovery after 2015, with sales possibly sliding back to between 16.5 million and 16.7 million vehicles in 2016. The big reason is that the growing share of car buyers who opt to keep monthly payments low by extending loans to five to seven years will still be paying off those loans, he said.

 

"Sales obviously are not going to be as high in ‘16, ‘17 and ‘18 and in those outer years because individuals are not going to be coming back into the market," Szakaly told reporters during a conference call Nov. 17. "They're going to be continuing to pay off these leases and these loans that are extending out five, six or seven years. So we're not going to see them come in as often."

 

Small risks

 

NADA's forecast said U.S. economic growth next year could be undermined by slowing GDP gains in China and continued economic weakness in Europe, damping demand for exports from the U.S. Higher interest rates could also slow the U.S. housing market and risk stunting truck sales.

 

"Existing home sales are expected to remain sensitive to interest rate rises, more so than new vehicles, and could easily dampen activity in new-home construction and reduce sales of light trucks," Szakaly said.

 

On the other hand, low gasoline prices could make these vehicles more affordable to own and help stimulate the broader economy. Prices were near a four-year low of $2.89 per gallon on average according to AAA, and are expected to remain low next year. NADA said crude oil prices should hover between an average of $71 and $73 a barrel in the first half of 2015 before rising to $83 on average in the second half.

 

Szakaly said during the conference call that cheap gas will add about 200,000 to 250,000 sales next year, with light truck sales accounting for about 54 percent to 55 percent of the market in 2015. Gasoline prices are expected to remain stable and low next year, continuing nearly two years of generally stable prices. That, combined with more efficient vehicles, should aid a continued shift of consumers away from passenger cars and towards bigger vehicles.

 

Stable fuel prices give consumers "a lot of confidence, rightly or wrongly, that they can go ahead and move back up into a larger-sized vehicle, and there's the fact that these vehicles are becoming more fuel efficient," Szakaly said.

 

"We're seeing some very, very strong gains in terms of fuel economy on pickup trucks and on sport utility vehicles. When you couple that with an outlook for lower gasoline prices, it would indicate a very good market for light trucks and SUVs."