U.S. auto sales fade — layoffs coming
For seven years, the steadily expanding auto industry has helped drive the U.S. economy forward, racking up billions in profit and paying workers hefty bonuses, all while consumers flocked to dealerships and drove sales to record heights.
It is a boom that President Trump has been counting on to add more jobs. But the industry’s ability to do so is now in question.
On Tuesday, automakers reported the fourth straight monthly retreat in sales of new cars and light trucks, the longest stretch of declines since 2009, when the industry was embroiled in crisis and bankruptcies. The slump underscores the view of many that auto sales have peaked and are set to keep going down.
“The market is tapped out,” said Adam Silverleib, vice president of Silko Honda, a dealership in Raynham, Mass. “It’s no longer expanding at the rate the manufacturers thought it would.”
He added that the more optimistic consumer sentiment recorded since Trump’s election “hasn’t translated into what’s happening in dealerships where we’re trying to sell cars.”
Moreover, the top six automakers in the U.S. market all reported declines from their April sales a year ago, and in every case, the falloff exceeded analysts’ forecasts. Wall Street took notice: Shares of Ford and Fiat Chrysler were down more than 4 percent, and General Motors shares fell almost 3 percent Tuesday. All three bounced back slightly Wednesday.
In April, automakers sold 1.43 million cars and trucks, down from 1.5 million a year ago. But even before those totals were reported, automakers had started preparing to trim the number of vehicles they are making, which almost always means jobs are eliminated.
Some 1,100 workers at a General Motors plant in Lansing, Mich., are being laid off this month and will be out of work for at least the next five months, although about 700 of them are expected to be rehired by the end of the year. Three other GM plants are eliminating shifts, moves that will idle more than 3,000 other workers.
“We are very cognizant that we operate in a cyclical industry, and we are in the eighth year of expansion,” GM’s chief financial officer, Chuck Stevens, said in a conference call last week after the company reported first-quarter earnings. “We are very focused on acting like we are in a downturn.”
The automakers’ comeback since the 2009 crisis had been driven in large part by low gasoline prices that have fed Americans’ tastes for SUVs and trucks — particularly profitable categories, and the models more likely to be assembled in the United States rather than Mexico. Sales also benefited from pent-up demand as recession turned to recovery.
Now people seem to be holding off on spending more broadly — not just on cars, but on other big-ticket items, a primary factor in the economy’s tepid first-quarter performance.
Ford and Fiat Chrysler both saw their sales fall 7 percent or more in April, while Honda’s fell 6.3 percent and General Motors saw a 5.8 percent slide. Toyota declined 3.5 percent, and Nissan dipped 2 percent. (Those figures exclude the Japanese carmakers’ luxury brands.)
For General Motors, the domestic downturn compounds difficulties it is dealing with abroad. It has announced plans to sell its Opel and Vauxhall operations in Europe, and it said Tuesday that it would take a $100 million charge to write off the value of its factory in Venezuela, which was seized by authorities in the volatile country two weeks ago.
Like GM, Fiat Chrysler has idled several thousand workers this year while it retools factories in Toledo, Ohio, and Belvidere, Ill.
Further production cuts may be coming. Many analysts have forecast that auto sales will reflect a small decline this year — to about 17.2 million vehicles from the record of 17.5 million sold in 2016. But some expect the industry to see larger declines after that. AlixPartners, a consulting firm, is predicting that sales will decline to 16.6 million vehicles in 2018, and 15.2 million in 2019.
Mark Wakefield, a managing partner at Alix, said such declines would force manufacturers to lower production further.
“They’re doing it already,” he said. “When the manufacturers take capacity out, that means less overtime, or actual layoffs.”
The trend toward lower production runs counter to the wishes of Trump, who has been pushing automakers to manufacture more cars in the United States and import fewer from other countries, including Mexico and Canada.
Slowing sales is not the only trouble the industry is facing. Inventories on dealer lots are rising. As of the end of April, GM had enough cars to last 100 days at the current rate of sales. The industry considers 60 days ideal.
Interest rates, if they rise more this year as the Federal Reserve intends, could crimp sales further.
Automakers are also resorting to ever sweeter incentives to sell models like small and midsize cars, which have been eclipsed by larger vehicles. In April, Hyundai Motor, the South Korean automaker, offered discounts of $5,000 or more on its Sonata sedan. “Midsize cars are really struggling,” said Andrew DiFeo, owner of a Hyundai franchise in St. Augustine, Fla.
Another challenge comes from the increasing supply and falling prices of late-model used cars. An estimated 3.6 million leased vehicles are due to be turned in this year, according to Manheim, an auto auction company. Another 4.1 million are due back in the market next year. Most will end up on dealer lots, where they make less expensive alternatives to new cars.
Silverleib, the Honda dealer in Massachusetts, is seeing the impact already. In April, his dealership sold 104 used cars, compared with 65 a year ago. It sold 99 new vehicles, four fewer than a year ago.
“What that tells me is new sales are stagnant,” he said.