The auto boom, one of the key components propping up consumer spending, has come to an end. Dealers are wildly overweight SUVs just as the market turned.
As auto-industry growth stalls and family sedans go the way of the flip phone, one silver lining had been the trusty “crossover” SUV. Sales in the category boomed amid lower gasoline prices and higher demand for spacious wagons with all-wheel drive.
But more clouds seem to be gathering as the summer car-selling season comes to an end. Incentives on SUVs are skyrocketing amid rising inventories, a trend that promises to dent the fat profits the segment has long returned.
Auto makers report sales on Friday, and August volume is expected to rise 2% compared with the same month in 2016, but only because dealers have an extra selling day this year. On an adjusted basis, the rate of retail sales—stripping out deliveries to fleet buyers—will hit the lowest point of 2017, according to J.D. Power, despite hefty sales incentives and new model offerings.
The U.S. auto market’s slowdown isn’t a new story, as analysts widely expected a seven-year growth streak to end and for sales to plateau at roughly 17 million a year for the foreseeable future. Red flags for the crossover market, however, represent a whole new set of headaches, particularly for companies like General Motors Co.
“The industry is wildly overweight on crossovers,” John Murphy, an auto analyst for Bank of America Merrill Lynch, said in a recent presentation. The number of crossover models sold in U.S. dealerships is expected to rise to 110 nameplates by late 2020, up from 78 today, he estimated.
Auto makers like GM—long dominant in the SUV market—have relied on bigger or heavier vehicles with higher price tags to drive profits, and offset the losses that result from sales of family sedans or compact cars. But in the first half of 2017, incentives for SUVs shot up 33%, according to research website Edmunds.com, with the average discount or rebate in the segment reaching $3,200.
Ford Motor Co. is currently offering a $3,500 cash rebate on the Ford Escape, along with 0% financing for 72 months. A Ford spokesman said the SUV market is “increasingly competitive,” noting average transaction prices last month fell $400 compared to a year earlier.
Economists Expect Plateau
At every peak, economists expect a “plateau”, be it the stock market, the housing market, or cars.
Reasons to Expect a Crash
- Self-driving features are on the way and many people will wait for them
- Lots of retiring boomers purchased their last car
- Anyone who bought with long-term financing in the past few years is deeply underwater, making trade-ins difficult
- Auto sales are increasingly subprime
- After years of record sales, who needs a newer car away?
Vehicles account for 20% of retail spending. A crash or even a significant slowdown will impact retail sales and thus GDP.
Mike “Mish” Shedlock
What’s wrong with auto companies? Every other industry has been able to avoid this problem with simple inventory management. They have a dealer network and they know their sales. Why can’t they match that better with manufacturing?
Not stated in the article, but I suspect this is a US automakers only problem. Their poor management has been known for decades. They always need bailouts because they cannot match what consumers want with reliable products. These are the idiots who will sell self drivers that confirm everyone’s worries about what could happen.
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Noone needs a bailout. Bailing out an automaker, doesn’t in any way improve their ability to produce cars. All it does is transfer money from tax payers. And not to “the automaker.”But instead only to the banksters that happens to own most of it, who are secure in the knowledge that their buddies down in Congress are there to, as always, rob others on their behalf.
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Stuki, you nailed it. They should have let them fail last time. Someone would have picked up the pieces and moved ahead much more professionally. If the government will bail you out you don’t have to be smart.
Will Trump come to the rescue ?
The truth lies in what his base wants!
Do they want to bailout the banks?
They hate Wall Street, Jews, bankers.
Trump has surrounded himself with Goldmas Sacks alumni.
He may go right off the deep end, if he hasn’t already!
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Anecdotally, I’m amazed at how old my ’09 car looks on the road. I am also surprised by the number of people I know who have recently bought new cars for well above what they can afford based on income. One gal was bragging about her 84 month financing on a new 40k SUV. “The payment is the same as a 60 month loan on a used one.” I almost hurled a stapler at her. She makes around 65k and husband makes about the same. He drives a 50k truck that never sees a dirt road and whose premium rhino lined bed is always clean.
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I’ve encountered that “stretch for a car” multiple times and find it hard to understand.
Still those people will complain about a lack of retirement income having blown earnings on rapidly depreciating oversized gas guzzling vehicles.
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This ‘phenomenon’ appears to be commonplace — at least in the Anglophone world. People who would normally be driving $25k cars suddenly driving $50-60k vehicles. Not only in the US and Canada but also, the UK, Australia and New Zealand. Part of it is rising house prices and part of it is unprecedented deals on vehicles.
German luxury vehicle (BMW, Audi and Merc) penetration in places like Australia is now off the charts compared to 5yrs ago.
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Once you have reached ( le plateau ) there is only one way left to go,DOWN!,this is true even for Empires.
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Hey Mish, can you clarify the comment that “vehicles account for 20% of retail spending”. If that is referring to just vehicle sales, the number is a definite wow. Does the 20% include just cost of buying a car or all things to do with vehicles? Thanks.
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For 2017 the figure is running at a 21% clip
Check advance retail sales
https://www.census.gov/retail/marts/www/marts_current.pdf
Table 1: 7-Month Total
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the gov blatently overstated July auto sales, if you compare those sales to what the car companies reported. which was a 7% decline in units, with reord hi incentives yet the govt reported seasonally adjusted higher sales.
If you ar etrying to hide an economic slowdown, you do that.
The thing I cannot figure out is whey the games continue with the Trump Presidentcy if the libs in govt want Trump to look bad.
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We are in the middle of a debt bubble…Just imagine what a serious financial decline will do to this sector…Bailout coming in 5…4….3….
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Everybody and his brother has multiple SUV and CUV nameplates (no wonder FIAT is looking to dump low quality Jeep on another owner). Gone are the days of simple, inexpensive and practical Subarus and Suzuki Samuris and BLOAT is in, bloated size, price and fuel consumption.
The silver lining is sensible, reasonable priced CUVs will be caught in the SUV price vortex as dealers start working thru their bloated inventories – and it isn’t even the start of the beginning yet!
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The last shoe to drop in the auto bubble. Auto makers are going to channel stuff until dealers will not take any more vehicles. I saw an advertisement for $500 cash back on Toyota Tacoma telling me the end is near.
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So last weekend I drove to the solar eclipse, from the Bay Area to Oregon. If I had a self-driving van, I’d just put the seats down into a bed, and let the car drive through the night while I sleep, avoid traffic, and not have to bother with hotels. Wake up in the morning and spend the day at my destination. Would need to figure out showers, is all.
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You’re going to be waiting a long time for this sort of SDV experience…
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What’s wrong with a self driving RV? If it’s self driving, just tell it to go park itself in the dessert when you don’t need it, and pick you up when you do. And to take off, getaway car style, if some dessert dwelling met heads try to steal it.
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I’m sure even a “cursory” glance at the last 5 years’ worth of “parlor tricks” composed and implemented by the FAT CATS in the auto industry, their highly paid lobbyist whores masquerading as “elected officials” in the “Federal Gubbermint”, and of course, lest we forget, our beloved TOO BIG TO FAIL, TOO BIG TO JAIL “banks” and their associated credit card and financing companies would turn up more criminal activity then Al Capone and his merry men completed in their entire careers. And guess what ? When all of this crap blows sky high, YOU morons are going to punched in the gut, and kicked in the ass, and slapped upside the head one more time. Ain’t it fun being a SERF ?
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I would not say they have a lot of excess inventory., 61 vs 50 days. I would think that is a minor adjustment to rebalance. I am sure low interest rates are doing to auto prices what it did to housing. I recently priced out a Yukon xl online and the msrp is between 65 to 70k. Ridiculous. The caddy version is 80 to 90. They manage to raise the price greater than the CPI so the rebates are just an illusion.
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Well, here’s the part that isn’t spoke about. Many who trade are already upside down. Major company’s have been financing marginal buyers with sub prime loans for a while now. Just last week. I believe Ford softened their credit requirements further. So, there is more to the story here. Vehicle days on the lots sets other things into play. Most of which is not good.
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“Self-driving features are on the way and many people will wait for them…”
LOL.
Mish – if you think a significant number of potential purchasers are postponing their car purchase to wait for the SD revolution, then you are kidding yourself.
SDV’s are not on anyone’s radar… not even close.
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I listed 5 reasons all valid, but certainly not in the order listed.
Self-driving will be an increasingly large reason a year or so before it’s available.
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If Detroit would put a 35-40mpg 4-cylinder diesel into a small/light PU truck, they’s sell millions & millions… the demand would never go away.
IOW, the Big Two are as dumb as a bag of rocks.
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Toyota and GM sells 4 cyl smaller trucks. Most people want the 6.
Mileage is nowhere near 35-40mg, as that is frugal-edition Civic, not truck, territory. Aerodynamics, or more like lack thereoff, in pickup trucks, makes it darned hard to get Civic style mileage out of one. Make it small enough, perhaps, but due to their much less aerodynamic profile, you’re talking much smaller than a Civic with a bed. Not sure how many of those people would buy.
GM does sell a 4cyl diesel which rates 30mpg highway….
Most people still opt for full sizers returning at best 20mpg…. The F150, almost entirely due to North American sales, is the single best selling car on the planet right now!
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Ya know- a self driving car is also self repossessing car.
That could justify a considerable expansion of available credit worthy car buyers
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miss a payment and self driving car drives back to the dealership. 🙂
no wonder they want it.
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Like it. You mean if you miss a payment the car drives back to the dealer in the middle of the night.
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mpower1969 is right…trouble is, they could’ve done that 30years ago..I agree prices for trucks and SUV’s are out of hand, I never thought I’d see the day when the price of a new pickup would be more than what I paid for my first house. To make matters worse, the very second the front tires of a brand new truck touch the street in front of the dealership you just lost $2-3000.. I bought a new 4wd pickup in 2011, today, it has 22,700 miles on it. I heat my house with a outside woodburner, and the truck is my wood hauler. I’ve put some pretty good loads of wood on it,I use it as it was intended to be used, for hauling things other than a sack of groceries, or the occaisonal sheet of plywood. Since it’s paid off(has been for 4 years)I plan to drive it until the wheels fall off. At these prices I’ll probably never buy new again.
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(1) Think we need to consider the source for this info, and what political agenda they are pushing. WSJ, Bloomberg and NY Times have become incestuous rotating doors with one another. The majority of their “reporters” live in a big city (NYC), and have zero idea what is happening in surburbia, much less rural areas.
(2) The post does not take into consideration two shifting trends in SUVs. People who “need” an SUV to go skiing or local camping (they need AWD and a decent sized area for luggage) versus people who go truly off road (and need true 4WD, truck parts that can withstand lots of abuse, etc).
The first market is “consumer” (average person) and is a large market, the second enthusiast/professional is much smaller. The first market is shifting toward Honda CRVs and Subarus and the like. Low cost, able to handle the typical weekend warrior type stuff — Ford and GM’s products cost way too much and are over-engineered for this use. The second market is the same size it ever was, and they are very happy the weekend warrior demand is fading so they can get their equipment at better prices.
The yuppies who fancy themselves as off-roaders are getting a reality check. Skip and Muffy with their Harvard law/MBA jobs are generally not able to take 2-3 months off from work to explore deep woods or deserts. The yuppie crowd have been sold on the idea they need 4WD and a lift kit to visit a local national park (with roads) — but they really don’t.
The yuppie job market is getting hit particularly hard — basic supply and demand tells me that law schools have vastly over-supplied lawyers in the last 20yrs. Welders and machinists and the like have been under-supplied (or worse: told to just go on welfare).
GM and Ford are always fighting the last war, and very slow to adjust to changing consumer trends. Non-US manufacturers are listening to what consumers want, and doing just fine.
The local Honda dealership can’t keep CRVs in stock. The local GM dealership is running so many promos and rebate deals that their own sales people seem confused.
Would you ask an Indiana corn farmer, thousands of miles away from the ocean, about sushi trends? And why would you ask a city dweller at the WSJ about SUVs? Parking a tiny car in a city costs as much as rent, so in a city everyone gets a cab/uber.
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I have a Subaru Outback that has virtually every option and amenity known to man, has more ground clearance than a Jeep, and consistently gets 34 mpg at 70 mph with the A/C running. You couldn’t give me the GM or Ford alternatives.
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Actually, I am waiting for a self-driving car, but a reasonable estimate is that I have another 50 or 100 thousand miles of quality driving on my current car, so I can wait 10 or 20 years for the SD to show up.
60K$ for a motor vehicle is absurd, unless of course you are a centimillionaire and live in a neighborhood where Maseratis are just the standard take the kids to school car.
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Zero Hedge notes that Ford is going to drop traditional credit scores for lending decisions. Fog a rear view mirror, get a car.
http://www.zerohedge.com/news/2017-08-25/ford-credit-abandon-traditional-credit-scores-sales-stall-and-subprime-delinquencies
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There’s also demographics. I don’t know how this will play out exactly, but I’m thinking Millennials. My step son is going into university next month. He and his peers are profoundly uninterested in owning vehicles. They find other solutions, like these “car to go” rentals, public transit, etc. They seem to want to spend their money on everything but a vehicle, and all the costs associated with it. How many of these kids will come out in 4 years with student loan debt that means they can’t buy a big ticket item like a car for many years after they graduate? The “drivers” for owning a vehicle, like family formation, suburban home ownership, etc. just don’t seem to be on their radar.
Like I said, many factors, and I don’t claim to have any real sense of how it’ll turn out, but Millennial attitude towards vehicle ownership feels like a good candidate for “reasons to expect a crash”.
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Reblogged this on World4Justice : NOW! Lobby Forum..
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Who’s going to come up with a million for a self-driving car? Good lord.
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