The US auto industry is facing its toughest challenge since the financial crisis

Ford F-150FordWho doesn’t love a truck?

The US auto industry had a record-breaking 2015, selling 17.5 million new cars and trucks. Nearly every car maker is raking in profits.

So what could go wrong?

For the major US car companies — General Motors, Ford, and Fiat Chrysler Automobiles — the risk has never been higher that they will repeat the mistakes of the past.

And one mistake stands out larger than any other: betting too big on sales of SUVs and full-size pickup trucks.

Detroit makes a lot of money on these vehicles, which are in such demand now that FCA CEO Sergio Marchionne commented on a conference call with analysts after the carmaker released strong fourth-quarter 2015 earnings that FCA has maxed out its capacity at two factories over the past half decade.

“That’s unhealthy,” he remarked.

The plants in Ohio and Michigan build the Jeep Wrangler and flagship Ram 1500 pickup truck, vehicles that have helped FCA stage a remarkable recovery from the bailout and bankruptcy during the financial crisis.

“We are running flat out today out of Toledo,” Marchionne said. “We are running effectively nearly seven days a week with almost no shutdown at the Wrangler plant to try and satisfy demand and we got nearly a similar arrangement in our truck plant.”

Say goodbye to the family sedan

Marchionne is one of the biggest executives in the industry to highlight an obvious shift away from cars — sedans, mainly — toward trucks as the product of choice, particularly in the US.

“There has been, in our view, a permanent shift towards [SUVs] and pickup trucks and we have seen, certainly in terms of our ability to meet market demand some severe restriction in terms of the dexterity of our manufacturing system to accomplish that end,” he told analysts while explaining that FCA would sacrifice production of its Dodge Dart and Chrysler 200 passenger cars to build more SUVs (you can read all his comments at Seeking Alpha).

FCA is the first of the Detroit Big Three to commit to a truck-centric business plan moving forward. The big question is whether Marchionne is right and a “permanent shift” in the market has occurred — or whether this is an alarming flashback to the pre-Great Recession period, when Detroit effectively abandoned cars only to get crushed after the crisis when gas spike above $4 a gallon in some parts of the country.

Jeep CherokeeJeepJeeps are selling incredibly well for FCA.

Nothing to slow down truck sales

Ford sells the most popular truck in the US — the F-150 — and has an extensive lineup of SUVs and crossovers, but the automaker’s CEO, Mark Fields, told analysts on Thursday after Ford reported its own stellar earnings that he wasn’t prepared to follow Marchionne over the edge.

“It’s important to have a balanced portfolio,” he said, in response to a question from Deutche Bank’s Rod Lasche.

Lasche wanted to know if Ford would simply have to accept the lower profit margins that cars deliver, but Fields was unwilling to concede that point. He’s a far more diplomatic CEO than Marchionne, who has been expressing a gloomy prognosis for the auto industry’s future despite the 2015 sales record and FCA’s lucrative spinoff of Ferrari last year.

Fields noted that he doesn’t see the current string sales cycle in the US coming to an abrupt end.

“Wages growing, jobs growing, we have low interest rates, and that’s putting more spending power in the hands of consumers,” he said.

And he added an additional, critical factor: the average age of a vehicle on US roads is at its highest level ever, 11 years on average.

“Pickups in particular are very old,” he said.

Old ford f-250 pickup truckiSeeCars.comAmerican is a nation of old pickup trucks.

Temptations too great

A major dilemma the Big Three will face in 2016, if the market continues to boom, is whether to add or shift capacity to build more trucks, crossover, and SUVs. It seems unlikely that gas prices will recover any time soon, and the impact of the Fed’s modest rate hike hasn’t dampened auto lending on larger, more expensive vehicles, so they will be under pressure on the demand side to deliver the cars that dealers want to sell and that customers want to buy.

The bottom line is that Marchionne is probably right that the US market has shifted decisively away from cars into trucks (even Tesla had to build an SUV, the Model X, to satisfy market demand for an all-electric truck). You can now buy a versatile crossover of various sizes and levels of luxury at numerous price points. So unless for some reasons you really like having a trunk, you’re going to consider an SUV or crossover first when you think about buying a new car.

The industry is going to logically be pulled in this direction. Even if gas prices do spike, improvements in engine technology mean that trucks get higher MPGs than they did in the past. So all the old reasons to not buy them are going away.

However, history does tend to repeat itself in the auto industry. So executives are going to have to tackle this challenge on a quarterly basis — and with the exception of FCA, keep their ability to make small- and mid-size cars in shape, just in case

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