- aldenjewell / Flickr
Auto sales in the US set a record in 2015, when 17.5 million new cars and trucks rolled off dealer lots, but if you listen to the chatter around 2016 sales or look at the stock prices of General Motors, Ford, and Fiat Chrysler Automobiles, you might think that an industry collapse is right around the corner.
Sales haven’t tanked in 2016 by any means. But by contrast with last year, they haven’t continued surging.
As automakers prepare to report September sales next Monday, analysts expect a sales pace of around 17.5 million, according to Bloomberg – the finally tally for last year’s record.
So the market isn’t sliding – it’s merely flattening, and flattening at an historically high level.
Auto sales skeptics are relying heavily on past history for the negative views of the industry. In the past, when sales have plateaued, car companies have upped their incentive spending to maintain market share – a protective measure against a downturn. As Bloomberg has reported, incentive spending is at record levels, nearly $4,000 per vehicle.
That datapoint has fueled the argument that we’re about to revert to the same-old-same-old: automakers will spend their profits away as the growth vanishes.
But that quick take ignores a critical factor in the current market: mix.
- Business Insider
Car companies are selling a lot of trucks and SUVs in the US right now, and these vehicles have higher transaction prices than family sedans and small cars. So the discounting is relative. Knocking a few grand off a high-margin vehicle is obviously less desperate than eliminating your profit on a compact four-door.
With interest rates and gas prices low, increased incentive spending could actually be a smart move now, as long as the vehicles being sold are big moneymakers. Come Monday, the debate over this practice will arise, especially if automakers such as Honda and Toyota post solid sales while GM and Ford slip.
But if the automakers that aren’t as strong on trucks – and especially pickup trucks – are also hiking incentives, then their results are the ones that should give everyone pause. The US market is shifting away from passenger cars toward SUVs and pickups. The companies that are heavy on cars in their mix are in the awkward position of getting less from their incentive spend.
Something else to consider: if US auto sales held up in September, industry skeptics will officially start running out of time to harp on an impending sales crisis. Almost 12 million vehicles have been sold through August, Bloomberg noted. At that level, even a flat or slightly declining market should enable 2016 to match – or come very close – to 2015.