Bust puts brakes on Motor City
These should be boom times for Detroit. Unemployment is at a half-century low, petrol is cheap and car sales in the US were near record levels last year.
Yet American car makers are closing factories, cutting shifts and laying off thousands of workers. The industry is behaving like a recession has arrived.
In one segment of the market, it has.
Detroit is in the grips of a car recession marked by the collapse of demand for traditional sedans, which accounted for half the market just six years ago.
Buyers have made a mass exodus out of classic family cars and into sport utility vehicles that offer more room and, these days,competitive fuel economy.
Familiar sedan models such as the Honda Accord made up a record low 30 per cent of US sales last year, and things will only get worse.
Sales of the passenger-car body style that has dominated the industry since the Model T will sink to 21.5 per cent of the US market by 2025, according to researchers at LMC Automotive, relegating sedans to fringe products. That leaves car makers with excess factory capacity that can turn out about 3 million more vehicles than buyers want.
And overcapacity is precisely what spurred losses the last time a recession hit the industry.
“You could classify this as a car recession,” Jeff Schuster, senior vice-president of forecasting at LMC Automotive, said.
It is a situation that promises to put a dampener on the North American International Auto Show in Detroit this week.
The overcapacity plaguing American car makers is the equivalent of 10 excess plants, which would account for at least 20,000 jobs directly, and thousands more as it ripples through the suppliers and support services to the massive industry.
“GM has taken some actions, but they still have some wellunderutilised plants,” Mr Schuster said.
“So we may not be done with this yet.”
One strategy for dealing with the collapsing car market in the past has been to stuff unwanted sedans into rental lots and other commercial fleets.
That has only delayed today’s capacity crisis.
Those lower-profit fleet sales have inflated the market, keeping US vehicle deliveries above 17 million for the past four years, even as sales to individual retail customers peaked three years ago.
“The car recession and the retail recession have already arrived in the sense that retail sales peaked in 2015 and have gone down ever since,” Mark Wakefield, head of the automotive practice at consultant AlixPartners, said.
“Cars have crushed.” just been
The 2020 Ford Explorer unveiled at Ford Field, the home of the Detroit Lions NFL team.
The 2020 Cadillac XT6.