US car downturn jolts Trump’s factory push
FORD Fusion: down 37 per cent. Chevrolet Malibu: down 36 per cent. Toyota Prius: down 29 per cent.
As those grim numbers suggest, the US auto industry was blindsided last month by just how fast sedans have fallen out of favor with Americans now embracing roomier sport utility vehicles. Family-friendly crossovers may be more profitable, but the quick shift is causing headaches.
The swerve in consumer taste is just one of the forces -- along with slumping used- car values and a pullback in subprime auto lending – that are changing the equation for manufacturers as President Donald Trump leans on the industry to build new plants and boost hiring. That’ll be hard to pull off: A glut of both new and used vehicles on the market has sparked an incentives battle, meaning new production lines are the last thing the companies need.
Industry-wide deliveries in March were supposed to show a rebound following small dips in January and February. But the annualised sales pace,
I’ve been expecting a slowdown for a while. It shouldn’t be a surprise. Once you hit peak sales, it seems like you only have bad news ahead. David Whiston, Morningstar Inc. analyst
adjusted for seasonal trends, slowed to 16.6 million vehicles, from 16.7 million a year earlier, according to researcher Autodata Corp. Analysts had projected the rate would accelerate to about 17.2 million.
Carmakers set a record in the US last year, with 17.6 million vehicles sold.
“I’ve been expecting a slowdown for a while,” said Morningstar Inc. analyst David Whiston. “It shouldn’t be a surprise. Once you hit peak sales, it seems like you only have bad news ahead.”
Ample discounts have failed to spur demand for models like General Motors’s Chevrolet Malibu and Ford’s Fusion, which are being surpassed by crossovers as the new American family vehicle of choice.
The Toyota Prius sedan model continued its slump despite a thorough makeover in late 2015 that improved the staid hybrid’s ride.
In March, sales of crossovers including the Chevrolet Equinox and Ford Escape were up 11 per cent, while mid-size cars like the Fusion fell 16 per cent, according to Woodcliff Lake, New Jerseybased Autodata.
SUVs are keeping profits afloat. Cheap petrol and more efficient engines are allowing buyers to get into the bigger people-movers they love.
With an average sticker price of more than US$ 38,000 ( RM171,000), a truck or SUV costs about US$ 10,000 more than the average car.
The incentives needed to sell them amount to an 8.8 per cent discount, compared with 11 per cent for cars, according to Edmunds.com, an industry research firm.
The problem is that even popular SUVs need more and more incentives to keep sales moving.
“Higher incentives have pushed demand about as far as it can go,” Joe Spak, an auto analyst with RBC Capital Markets, wrote in a report Monday.
For the auto industry’s incumbents, inventories are high and incentives are at nearrecord levels. That’s prompting companies to spend more on discounts just to stay close to 2016’s record results. Jessica Caldwell, an analyst with Edmunds.com, said odds are slim the US market finishes at last year’s level, particularly as interest rates start to rise and leasing growth stalls.
“Last year, it seemed like ‘Oh, there’s still probably room for it to grow, all the other metrics look good,”’ Caldwell said. “But this month it seems like things are pointing to a slowdown.”— Bloomberg