Automakers reported April sales results on Tuesday, posting declines from last year’s record pace that were worse than Wall Street had expected.
Auto analysts were certain that sales would decline, because, well compared with last year’s torrid pace there was really nowhere else to go. In fact, if April ’17 sales had somehow matched or exceeded April ’16 sales, automakers would be up against a major issue. They’d have to start thinking about adding manufacturing capacity ahead of a downturn, an unsavoury prospect for them given that they know the US market has rarely stayed above a 17-million per year pace for long.
That didn’t stop traders from fretting about the decline. Share prices of Ford, GM, and Fiat Chrysler Automobiles all are down in trading Tuesday.
But investors who are worrying about a drop in sales are misunderstanding what matters to Detroit right now. After two years of records, it’s the mix of ongoing sales that matters.
As my colleague Akin Oyedele notes,
shoppers are opting for the big, expensive cars that are the most profitable for Detroit. Ford’s F-series trucks were strong as its sedan sales slowed, for example. Also, Detroit’s selling more luxury trucks too.
Trucks, trucks, and more trucks
“GM and Ford had another strong month for pickup sales,” Rebecca Lindland, an Executive Analyst for Kelley Blue Book said in a statement.
She added: “Ford Super Duty’s transaction pricing was a stunning result — up $US8,400 year over year to $US58,200 — and GM reported that nearly half of all Sierra Heavy Duties were Denalis, proof that luxury isn’t defined by a brand name anymore and buyers are willing to spend for technology, utility, and capabilities.”
The combination of rising transactions and vehicle mix — highly profitable trucks and SUVs versus low-margin passenger cars — cuts very much in the automakers’ favour, even if the US market peaks or plateaus. Simply put, the conditions now are nearly ideal for car companies to bolster their already healthy balance sheets and get proactive about investing in future opportunities.
Frankly, it’s odd that analysts are still seeing the US market run at a 2016 pace. Most carmakers are now assuming a moderation of demand, bringing sales down to a 17-million level. And in any case, anything above 16 million would be considered a very healthy market, not a source of concern.
As long as gas remains relatively cheap, credit is flowing, unemployment stays low, and wages continue to tick up without setting off inflation concerns, automakers are going to get fat and happy on their current vehicle mix. Anyone selling pickups and SUVs is in excellent shape as the market shifts decisively toward those vehicles.
The headlines make the situation look bad. But the truth is it couldn’t be better.
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