U.S. car demand falls
The U.S. automaker industry has lost steam. Sales figures for March were below market expectations. Estimates from Auto industry publication WardsAuto show the seasonally-adjusted annualized rate (SAAR) for light vehicle sales to be 16.53 million units while Industry consultant Autodata pegs it at 16.62 million units for the month of March. Auto Industry analysts that were polled by Reuters expected 17.3 million units.
Jessica Caldwell, executive director of industry analysis for Edmunds.com, a car buying website, said, “Trucks and SUVs, although they did well, it’s still hard to make up the lack of car sales. You can’t have the other side of the industry completely not performing well.” 39% of total industry sales were cars and sales for cars were down almost 11%.
Ford Vice President of Sales Mark La Neve said that buyers were enthusiastic about trucks that had premium options which increased Ford’s average sale prices by $2,500. LaNeve said, “Sport Utilities and trucks are very positive in terms of our economics. If you think about it, it means revenue is up.”
The reason for the popularity of SUVs are the cheap gasoline, and they now have more efficient engines. According to Edmunds.com, an industry research firm, incentives needed to sell SUVs are lower than for cars. SUVs can be sold with 8.8% discount compared to cars which need around 11% discounts.
This slowdown in car demand shows that the car industry might have reached their peak considering they had seven years of increasing sales as well as two consecutive banner years of record sales.
Mark LaNeve, Ford’s vice president of U.S. and marketing, said, “Certainly, we are not seeing huge growth in the market, but…overall industry and pricing levels, I’d say are good.”
Ford’s sales fell 7%, Fiat Chrysler Automobiles sales fell 5%, Kia sales fell by 15.2% and Hyundai sales fell by 8%. General Motors bucked the trend with an increase of 1.6% as well as BMW whose sales rose 3.6%.
Judy Wheeler, vice president of U.S. sales at Nissan Motor Co. Ltd, said, “March was a tough, tough, tough market. It is going to be an aggressive year and I think everybody realizes that.”
Car inventories are on the rise but Mark Scarpelli, the owner of various car dealers in Chicago, thinks it is nothing to be concerned about as it is just part of the typical business cycle.
Caldwell believes that it is unlikely that the U.S. car industry will match last year’s level as interest rates are increasing. Caldwell says, “Last year it seemed like ‘Oh, there’s still probably room for it to grow, all the other metrics look good,”’ But this month it seems like things are pointing to a slowdown.”
Profits are likely to fall for automakers as they are inclined to cut production. Mark Wakefield, head of automotive practice at consulting firm Alix Partners, said, “You’re not going to see the U.S. get new plants. The market went from pull to push nine months ago. We don’t see it going upward from here.”