Auto sales set a record in 2015, with 17.5 million new cars and trucks rolling off dealer lots, but a lot of market analysts now think 2016 will come in below that mark.
Polina Noskova checked in with one of these market watchers. “
U.S. sales of cars and light trucks this year will fall short of 2015’s record in the first annual decline in seven years, LMC Automotive said in a revised estimate that cites ‘recent plateauing’ of deliveries and ‘growing economic and political risk,'” she reported.
Shares of the three major US automakers — GM, Ford, and Fiat Chrysler Automobiles — have declined since the beginning of the year (FCA didn’t fall off a cliff, with a more than 50% drop; rather, the car maker spun off Ferrari, taking billions in value out of FCA stock). You see this below: GM is blue, Ford is red, and FCA is yellow.
However, all three have been posting profitable quarters for a while now, along with relatively solid monthly sales.
Nevertheless, a thesis is developing that the US market is weakening has developed, even though the market is just flattening out. The 2016 sales total will probably come in around or over 17 million in sales, which is roughly two million above the accepted “replacement rate” for US auto sales — and fully six million above that GM and Ford say their break-even sales pace is.
But even is we are at the end of an upward-trending sales cycle, it’s important to look at what kinds of vehicles are actually selling.
For the Detroit automakers, it’s SUVs and pickups, historically very profitable sets of wheels.
It would be one thing if we were looking at a plateauing or decline in a car market. It’s hard to generate a good profit margin with that type of vehicle, even when you’re talking about full-size sedans.
But declining pickup and SUVs sales could enable car makers to keep their margins up longer.
And because gas is still relatively cheap, credit if flowing, unemployment is low, and the average age of a vehicle on US roads is historically very advanced at 11 years, the underlying market dynamics don’t point to a massive sales swoon.
So there really is nothing to worry about, insofar as the health of US automakers is concerned. But analysts are fretting anyway. And it’s become a big mystery as to why they’re continuing to do this.