According to sales stats, in 2017 the USA enjoyed
its third straight year with total vehicle sales above 17 million units.
Whoopee! The car industry is holding its own, and then some!
Whoa! Hold the phone! A quick look behind the
total sales numbers reveals a pretty grim picture for the US auto industry.
This week the Detroit Auto Show opened its
doors to the media, and the big news is? You guessed it, TRUCKS!
Gasoline
prices have dropped, so Americans have
once again embraced SUVs and trucks, leaving cars behind in the exhaust fumes.
Also, despite the big sales numbers,
regular buyers are dropping off like flies. Buyers of new vehicles have dropped
for two years in a row. Four things are driving this – first, increasing interest
rates are driving up hire purchase and leasing costs; Second, younger drivers
are showing less interest in OWNING a car, preferring daily rentals; and third, older car owners are keeping their cars longer; and fourth the number of low mileage, ex-lease cars coming onto the market has jumped from 3.6 million cars in
2016, to 4 million last year.
The only thing driving new car sales up are units
sold to fleets and rental car companies. Some things never change!
This means that whilst automakers bump up
production numbers on trucks and SUVs; those same manufacturers are looking at
idling passenger car plants, laying off workers, and we may even see some
nameplates disappearing.
The other significant issue affecting
carmaker profitability is the ever-increasing cost of ‘marketing’ (ie: cash
incentives). Autodata Corp. says
average incentive spending heading into June 2017 was up 15 percent to $3,516
per vehicle sold. Despite weakening demand for cars, incentive spending for
light-duty trucks increased 16 percent compared to 13 percent for light-duty
passenger cars during the first five months of the year.
Now, incentive
spend, on average per vehicle, is close USD$4000 per car – a position many
analysts say is unsustainable, especially in light of the fact that so far this
year (adjusted against 2017's annual rate of 17 million) overall sales are down 2%.
Alix Partners of Detroit is forecasting
lower overall sales of new vehicles in 2018, and maybe even lower sales again
in 2019. It says the market is plateauing.
Example: cars like Camry, used to make up 25% of sales – they now account for just 15%.
As President Trump only has a sufficient
attention span to read headlines, and not the body copy, he will undoubtedly
dwell on the headline sales numbers and pronounce the US car industry is in
rude health. Maybe one of his acolytes will try to explain the real truth, but
in typical Trump fashion, he will ignore that, and dismiss the reality as ‘fake
news’.
And, you can forget about all this
self-driving cars stuff amounting to anything worthwhile inside the next ten years. In the
USA, it simply will not happen.
There are really big changes coming in the
car business over the next 10-15 years, most of it structural – in the way cars
are made and sold.
Any decent growth in electrically-powered cars will change
the build costs, as designers no longer have to accommodate conventional
powertrains, so the whole cost structure will change, and surprisingly may lead
to tighter profit margins as this transition occurs.
That is because all the new electronics
needed for new vehicle designs are going to bump up manufacturing costs. EVs
may be simpler, but they won’t be cheaper to make.
Only one company says it will buck the
trend of loss-making EVs – and surprisingly, that’s General Motors. It’s
already showing encouraging sales for the Chevy Volt (below).
GM’s Chairman and CEO Mary Barra says GM
has a recipe for making profitable electric cars, and observers say GM’s
planned new EVs will swamp Tesla, which has never made any sort of profit, and
which some analysts say may well disappear in a cloud of SpaceX smoke!
Now, whilst I am banging on about a bright
future for GM’s electric vehicles, spare a thought for Tesla.
Just in case you
are one of the people who harbor the view that Tesla is successful and
profitable, and about to smash its rivals, here’s some sobering stats.
The top graph shows Tesla’s Net income
stream (2010-2015), yes, it lost USD$520 million so far; the photo is the Tesla 3, the car Elon Musk says is Tesla’s
big volume seller (only 800 cars delivered so far); and the bottom graph shows
Tesla’s profit per car between 2013 First Quarter and 2016 First Quarter.
Mark my words – Tesla will be automotive
road kill within five years at this rate!
I’m glad I’m retired and just watching from
the sidelines.
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