US auto sales break 7-year streak, but party isn’t over

MICHIGAN • An unprecedented seven-year streak of annual US auto sales growth finally came to an end, yet carmakers and their investors aren’t fazed.

Automakers capped their first year of shrinking industrywide deliveries since the recession with Wall Street bidding up their shares on Wednesday.

Plenty signs point to another healthy — albeit softening — US mar- ket in 2018. Here are some of the rea- sons why — falling sales and all — carmakers aren’t sounding alarm bells just yet.

Trucks on Top

While total light-vehicle sales slipped in 2017, several automakers curbed lower-margin deliveries of car models to rental companies that tend to be heavily discounted.

Meanwhile, lucrative full-size pick-ups remained the top-selling models last year as Detroit automakers continue to cultivate loyal customers. Ford Motor Co’s F-Series was the top-selling vehicle line in America for the 36th consecutive year.

With each truck selling at an average price of US$47,800 (RM191,678), Ford and its pickup-heavy peers are raking in profit even as car sales slump.

“This year, it’ll be an even bigger year for trucks, because there are new ones coming,” Michelle Krebs, an analyst with car-shopping website Autotrader, said on Bloomberg Television.

“We know that Fiat Chrysler Automobiles NV will be introducing a new Ram this year. General Motors Co has a couple of new full-size pickup trucks and Ford will have some additions to the F-Series. So, it’s going to be the year of the truck.”

SUV Spending

Trucks aren’t the only money makers flying off dealer lots. American families are increasingly trading in their sedans for the new chosen family hauler — crossover SUVs.

SUVs that are built like cars provide the storage and higher seating position of their truck-based brethren, but more sedan-like handling and fuel economy. They also sell at higher price points, meaning more good news for companies’ bottom lines.

Toyota Motor Corp’s Camry sedan — a plain-vanilla icon that extended its reign as the top-selling car to 16 straight years — was surpassed by the Japanese automaker’s RAV4 crossover last year for the first time.

Light trucks, which include both pickups and SUVs, accounted for 63% of the market, up from 59.5% in 2016, according to Autodata.

“If you don’t call 2017 the death of the car, you can call 2018 the death of the car,” Mark Wakefield, head of the automotive practice at consultant AlixPartners, said in an interview.

“Every year, there’s a chop that comes out of that market.”

Luxury Living Large

While the US auto market is projected to shrink again in 2018 by about half a million vehicles, luxury-vehicle sales may hold their own or even grow a little.

“We anticipate the luxury market will be flat or slightly up,” Scott Keogh, Audi’s US CEO, said on a conference call.

Growth of 1% or 2% is possible in part because tax cuts have bolstered consumer confidence and boosted the stock market, he said.

Many high earners will see lower US tax rates, but eliminating the deduction for state and local taxes could stunt demand in some key luxury-vehicle markets, such as New York and California, said Joe Eberhardt, CEO of Jaguar Land Rover North America.

“Clearly there’s a positive impact on the corporate side as it relates to individuals and to our core target audience,” he said.

“Depending on which states you are based and live in, it may be a tax increase as opposed to relief, so it’s too soon to tell” what that means for net luxury sales, he said.

Friendly Financing

The US Federal Reserve raised interest rates last year and plans to do so again in 2018, likely crimping car sales on the margins.

Still, lending rates remain at low levels compared to 2000 and 2001, the only other period that annual US sales topped 17 million, according to Ivan Drury, senior analyst with car-shopping website Edmunds.

“Banks have a lot of funding available right now for consumers,” Judy Wheeler, Nissan’s VP for US sales, said in a phone interview. “It will be easy to get funding if consumers want to purchase.”

AlixPartners estimates the average car payment is US$460 a month now and would rise to US$560 by year end if interest rates rise by one point over the year, Wakefield said. Automakers may have the ability to counteract that with more incentives.

“It does come straight out of profit,” Wakefield said. “The alternative is to let someone else take it and take that share.” — Bloomberg