Benjamin Zhang/Business InsiderCadillac’s new XT5 crossover has been a winner for GM.
July US auto sales declined significantly, but it was a slip from the unsustainable pace of almost 18 million in yearly total sales in July 2016.
- Profitable trucks and SUVs are selling well, while low-margin passenger cars are sliding.
- A chorus of gloom and doom has broken out anyway, despite a generally prosperous market.
Auto sales in the US for July dipped significantly from the same month last year, and that set off a round of downer headlines. I won’t pick on everybody, but I’ll single out Bloomberg, where Jamie Butters and David Welch wrote the following under the headline “US Auto Market Slump Persists”:
Here’s a bad sign for the U.S. economy: Sales at General Motors Co. just plunged by the most in more than a year, and its Detroit rivals aren’t faring much better.
The 15 per cent drop GM posted in its home market last month was its steepest since May of last year. Ford Motor Co. reported its biggest sales decline since October and Fiat Chrysler Automobiles NV had its second worst tumble this year.
GM, Ford, and FCA all saw declines that were larger than what analysts expected. But then again, the sales pace last July was running at nearly 18 million, which was unsustainable. Meanwhile, the big theme for the year-over-year slide was weakness for passenger-car sales.
Crossovers and SUVs did well, and for Ford, the bread-and-butter F-Series pickups actually saw an improvement from last July. Just to look a bit more closely at GM’s sales, the company moved over 200,000 vehicles in July — and sold them for, on average, $US1,000 more than last year.
Of the mix, 80% were crossover and trucks, the carmaker said. These are GM’s most profitable vehicles.
“Changing customer tastes have driven us to refocus our business on higher-margin, faster-growing segments, like the crossover segments,” US sales VP Kurt McNeil said in a statement.”We are launching the most all-new crossovers in our history to take full advantage of the changes occurring in the U.S. marketplace.”
Don’t forget that GM also just turned in a very profitable second quarter, beating analysts’ expectations, after doing the same thing in the first quarter.
Not even close to a slump
That’s not a slump. That’s running the business exceptionally well as sales moderate from elevated levels last year, when a record 17.55 million new vehicles in total were sold in the US.
Two themes have been confirmed by July’s sales, however. The first is that many automakers are backing away from low-profit sales to rental fleets, which has impacted their numbers but also improved their bottom lines. The second is that a structural shift among consumers away from cars to crossovers and SUVs could be under way.
What we’re really seeing is what Ford CFO Bob Shanks told me last week: “Nothing that suggests a collapse, but rather a soft, gradual decline.”
Ultimately, to understand the current US market and what it means for the automakers, you have to be able to consider the decline in the context of its business context.
“There’s no denying the ongoing drop in auto sales, but this is a drop from record levels to near-record levels, unlike what happened in 2009,” Karl Brauer, executive publisher for Kelley Blue Book, said in an email.
“Brands with fresh and appealing trucks or SUVs continue to do well, many of them seeing record volume on vehicles with high profit margins. After seven years of perpetual growth it’s a tough wake-up call for some brands to face flat or slightly declining sales numbers. Only a few brands are really suffering in the current market, and those are the nameplates that depend heavily on coupe and sedan sales. The rest of the industry remains quite healthy.”
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