Deutsche Bank has warned that sales in the U.S. auto industry are on the precipice of collapsing on the back of rising interest rates.

According to Deutsche Bank analysts Rod Lache, Mike Levine and Robert Salmon, U.S. sales for new vehicles may fall to 16.6 million by the end of the year, 1 million less than last year’s record-breaking figures, Automotive News reports.

“Somewhat ominously, today’s market increasingly resembles one we described in ‘A Triple Threat’ (Feb. 20, 2004).

“In that report we highlighted the risks to the industry from rising rates, rising negative equity in vehicle loans and used vehicle-price deflation. This could lead to deteriorating affordability, delayed trade-in cycles, consumer shifts from new to used, diminishing credit availability and deteriorating mix/pricing,” they said.

One key concern for analysts is that a decreasing number of vehicles are being taken off the road with scrappage declining to about 11 million a year from 13-14 million a decade ago.

“This has led us to question whether the U.S. is broadly oversupplied, and whether trend demand in the 17 million range is fundamentally supported.

“If it is not, the oversupply should be self-correcting — the U.S. market will experience declining used-vehicle prices, pressuring new vehicle sales,” said the analysts.

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