Detroit’s auto show may be celebrating era about to end
Spain to pass US as 2nd tourism destination
AUTOMAKERS have reason to celebrate as they gather this week at the Detroit auto show to unveil the new range of brawny trucks, high-tech cars and rugged sport-utility vehicles that will arrive in showrooms in the months ahead.
They just ended 2017 with sales in the United States topping 17 million vehicles for the third year in a row, the best three-year stretch the industry has ever experienced.
Spurred by low petrol prices, Americans are snapping up trucks and sport-utility vehicles, which generate fat profits. The US economy remains strong, with unemployment low and interest rates modest.
“It’s going to be a very good year in 2018,” said Mike Jackson, CEO of AutoNation, the nation’s largest auto retailer.
But a closer look suggests that the industry may be headed for choppier waters than the hoopla in Detroit would indicate. While sales are healthy, consumers are actually buying fewer new vehicles. Purchases by individual customers at dealerships – known as retail sales and considered the most accurate reflection of demand – declined slightly in both 2016 and 2017. Some automakers are offsetting lower consumer purchasing by selling more cars to fleets like rental-car companies.
More worrisome is that the drops in retail sales have come even as manufacturers have resorted to heftier discounts, which eat into their profits. Sales incentives are now equal to more than 11 percent of the average vehicle’s sticker price. As recently as 2014, that figure was below 8 percent.
There are other troubling signs, too. Interest rates have started rising, which increases the cost of financing or leasing a new car. Younger buyers are showing less interest in owning cars. And the supply of low-mileage used cars is growing, giving shoppers attractive and lower-cost alternatives to new cars.
“There’s a lot of headwinds out there,” said Mark Wakefield, global head of the automotive and industrial practice at Alix Partners, a consulting firm.
The auto industry has a long history of going from boom to bust – periods of rising sales and buoyant profits followed by inevitable sales slumps that leave idle plants and mounting losses. The last bust coincided with the 2008 financial crisis and nearly ruined Detroit. General Motors and Chrysler had to be saved by federally engineered bankruptcy proceedings. Now analysts are now wondering if harder times are arriving again.
This uncertainty comes as manufacturers are adding factories. BMW and Audi are finishing new plants in Mexico. Volvo’s new plant in South Carolina will start building luxury sedans this year. Toyota Motor is adding a new truck plant in Mexico and just announced it would build a car factory with Mazda Motor in Alabama. Fiat Chrysler Automobiles is ramping up a plant in Michigan that had been idle for more than two years, after retooling it to make pickup trucks instead of cars. Fiat Chrysler has also just expanded Jeep plants in Ohio and Illinois.
The industry runs into trouble when automakers get stuck producing more vehicles than customers are willing to buy, said Ron Harbour, an auto manufacturing expert at Oliver Wyman, another consulting firm.
He added that one part of the industry was already in considerable distress – the car business. With Americans flocking to roomy vehicles like SUVs, sales of family sedans and compacts have plunged in the last few years. Family cars like the Toyota Camry used to make up 25 percent of all newvehicle sales. Now they account for just 15 percent.
As a result, some manufacturers are seeing a split in their operations. While running truck factories almost around the clock, they have been idling workers, cutting shifts or slowing assembly lines at their car plants. Ford, Toyota, Honda and Hyundai all cut output at car plants by 10 percent to 22 percent last year. GM cut production by about 33 percent at its Lordstown, Ohio, plant, which makes the slow-selling Chevrolet Cruze compact. In Oshawa, Ontario, GM’s largesedan factory lowered production by almost half.
“I wouldn’t be surprised to see a car plant close in the next few years,” if auto sales fall below 16 million vehicles a year as forecast, Harbour said. “Somebody’s going to have to bite the bullet.”
One factor that could mitigate any difficulties in car manufacturing is the outsized profits that companies are earning on trucks, which now make up two-thirds of all new vehicles sold. “The high mix of trucks is going to keep profits at near-record levels, and that’s going to help them get through this downturn on the car side,” Jackson said.
He also noted that GM, Ford and Fiat Chrysler streamlined operations over the past 10 years and were now better able to withstand shocks to their operations. SPAIN is set to replace the United States as the world’s second tourism destination while France has retained the top spot, the United Nations World Tourism Organization said yesterday.
“It is expected” that Spain will take the second position with some 82 million visitors last year, UNWTO chief Zurab Pololikashvili told reporters.
Definitive figures, however, will only be published in the spring.
Pololikashvili did not give any details about the United States, nor did he explain why Spain took the second spot despite a terror attack in August and a highly mediatised independence crisis in tourism magnet Catalonia, home to Barcelona and Costa Brava beaches.
John Kester, head of tourism trends at the UN agency, added that “everything indicates” that France would retain its top spot in 2017 – a good year for the industry as the number of global tourists leapt seven percent on 2016, the biggest increase in seven years.
Europe was the star of the show as it attracted a large number of visitors, up 8 percent from the previous year, lured in particular by the Mediterranean’s sea and sun.
This contrasts with 2016 figures that saw security fears hit visitor arrivals in Europe.
“We do see that demand for European destinations has been very strong,” said Kester.
“We also see important recovery in France,” he added, without giving further details about a country that was hard hit by extremist attacks.