Bank of America’s annual CAR Wars report offered a more optimistic auto sales forecast than current conventional wisdom during the company’s annual Car Wars presentation in Farmington Hills, Mich. on June 4.

Bank of America Analyst John Murphy kicked off the presentation with a three-year forecast of U.S. car sales.

“We continue to remain, despite everything that’s going on, fairly constructive on U.S. auto demands,” Murphy said. “Our official number for this year is 16.5 (million vehicles sold). We’re far above other folks and that includes the heat we might get from tariffs or pressures we might get from tariffs.”

“Ultimately, we think we’re going to get to a peak around 2028, late this decade, of about 18 million units.”

Murphy said the key driver is the pent-up demand that’s been built over the last few years, a number he pegs at 10 million units in the U.S. market.

One risk to this forecast is consumer confidence “which isn’t that great right now,” he said, adding that average transaction prices are also an issue since much of the pent-up demand involves price points that are at the lower end of the industry average.

Murphy said those who have negative views on new-car sales don’t understand the pent-up demand in the industry.

“What is often missed is the auto industry tends to be the key driver of business in economic cycles and tends to lead them,” Murphy said.

Despite concerns about interest rates, the economy and other issues, the “pent-up demand and the capital goods replacement cycle is really, really important.”

In terms of new-car inventory, Murphy cited figures showing 2.6 to 2.7 million units on dealer lots nationwide.

“Still on the low side compared to the 3 to 3.5 million units we had prior to COVID,” Murphy said. “Right now we’re at a 50-day supply.”

He described that figure “reasonably normal to a tad bit tight” compared to historical levels of 60 to 70 days.

Other ways Bank of America looks at supply is the total number of vehicles on the road in the United States and the distribution by age spectrum, Murphy said. “There’s about 280 million vehicles on the road in the United States right now, and what we’re seeing is a continued shrinkage of the 0 to 7-year-old car PARC,” Murphy said.

Even with Bank of Ameria’s aggressive auto sales forecast, there’s still going to see that shrinkage of the later model cars because fewer cars were sold over the past five to seven years, he said. It may recover in 2026, but Murphy said, “just a little bit.” He said the substitute product to a new vehicle is a late-model used vehicle, and those are in short supply.

“If you talk to dealer right now, they’ll scream bloody murder they can’t get used cars, thought they’d like to sell used cars, but they’re just not available,” Murphy said.

Over the next few years, Murphy said supply will increase and more new vehicles are sold, supply increases and more trades come I, creating velocity in the secondary market.

Another way Bank of America thinks about supply is capacity utilization which is the extent to which a company's resources are being used to generate output.

Murphy said when an auto plant operates at 80% capacity utilization, it’s the break-even point.

But North American capacity utilization is at 70% and expected to stay there for the next several years.

Despite this, there is still high level of profitability in the industry, Murphy said.

“What happened is the industry has gotten a tremendous amount of discipline – that nobody will give it credit for – in producing the right vehicles, at the right trim levels and maintaining price discipline,” Murphy said. “This is really important, because if the industry wanted to breakdown and produce a whole lot of vehicles and oversupply dealer lots and flood the market to try to obtain marketshare, they could. But they’re not.”

Car Wars is Bank of America’s proprietary study assessing the relative strength of automakers' product pipelines in the US. The purpose is to quantify industry product trends, powertrain trends, and relate Bank of America’s findings to investment decisions. Bank of America believes replacement rate drives showroom age, which drives market share, which drives profits and stock prices.