The auto industry is expected to sell well over 17 million vehicles this year and there is a chance that number could reach 20 million as early as 2018, according to a Bank of America Merrill Lynch researcher.
John Murphy, a lead U.S. auto analyst for the company, announced the news during a presentation to the Automotive News World Congress on Wednesday. He did add that a sharp downturn can be expected after that.
"We expect the cycle to continue for the next two years, reaching a peak in 2018 at 20 million units," he said. "That's a lot higher than most people are expecting but we also believe there will be a very significant downturn after that."
Though he mentioned that automakers should hold the lines on their balance sheets, the U.S. auto industry is in "a good recovery" for now thanks to the demand for replacement vehicles.
Last year, U.S. sales increased by 6 percent to 16.5 million vehicles, the fifth straight year U.S. deliveries grew. The auto industry hit a 27-year low in 2009 of 10.4 million during the Great Recession, according to Murphy.
The analyst said that his new vehicle sales prediction for 2015 is 17.3 million and provided a number of reasons why.
Dealer's new vehicle stock is currently normal and vehicles currently on the road are approximately 11 years old. The amount of older vehicles on the road has increased by nearly 28 percent over the last eight years.
"And when you think about obsolescence beginning to occur and technology and fuel economy improvements, those older cars are more likely to get scrapped," he said.
Murphy added that those factors will likely lead to strong vehicle pricing for used and new vehicles, which will cut back the need for aggressive price cutting or incentives to get people to dealerships.
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