U.S. auto sales shift to a more profitable mix

on Jul10

Photo credit: DAVID PHILLIPS

As down years go for the U.S. auto industry, 2017 may turn out to be the best one ever.

Total sales have fallen for six consecutive months, but the market is nowhere near as gloomy as that sounds. Retail sales have slipped less than 1 percent from a year ago, with the slowdown largely a product of reductions in less-profitable fleet deliveries.

And for many automakers, especially the Detroit 3, the fact that consumers are snapping up high-margin SUVs and crossovers instead of less-expensive sedans has been a boon to their bottom lines. U.S. light-truck sales rose 4.7 percent in the first half, setting records in every month except April and heading toward a total for the year of more than 11 million, after hitting 10 million for the first time in 2016.

LaNeve: No gripes about ’17 sales

“Obviously it looks like we hit a peak last year,” said Mark LaNeve, Ford Motor Co.’s vice president for U.S. marketing, sales and service. But LaNeve has no complaints about a year when automakers are still rumbling toward sales of nearly 17.2 million vehicles, which would be the U.S. industry’s fourth-highest tally ever.

“I’d take it all day long,” he said on a call with analysts and reporters last week. “You’ve got to remember, within that number … revenue would be up based on the mix effect of going to SUVs and trucks.”

Ford’s average transaction price has risen 3 percent from a year ago, according to Kelley Blue Book. Transaction prices are up 6 percent for Nissan North America, whose Rogue crossover has surged 31 percent to become the industry’s top-selling nonpickup, and 5.6 percent for the U.S. brands of Fiat Chrysler Automobiles, where light trucks now account for 87.6 percent of sales.

Industrywide, transaction prices are up 1.5 percent this year to $34,442 before incentives.

Compact crossovers and SUVs sell for nearly $8,000 more than compact cars, KBB said, while midsize crossovers and SUVs transact at about $12,500 more than their sedan counterparts. Automakers would much rather let consumers gravitate toward the costlier vehicles than try to draw them to slower-selling cars with big discounts.

In the first half of 2017, light trucks accounted for 63.1 percent of U.S. sales. A new report from researchers at the University of Michigan concludes that light trucks could be as much as 70 percent of the market in the coming years under favorable economic conditions. The researchers, Michael Sivak and Brandon Schoettle, see the tilt toward trucks as a long-term trend, even if fuel prices rise or the economy softens.

“Car sales in the near future are unlikely to exceed light-truck sales,” Sivak said. “This is the case because our analysis indicates that car sales exceeding light-truck sales would be associated with the following three economic conditions occurring simultaneously: disposable income substantially below the current level, and both gas prices and the unemployment rate substantially higher than the current levels.”

Car sales, down 12 percent in the first six months of 2017, are on track for a full-year total of fewer than 6.1 million, which would be the third- lowest since 1961. Sales of midsize, full-size and subcompact cars are all down more than 17 percent on the year.

The best-selling vehicles from Nissan, Toyota and Honda are all crossovers. At Chevrolet, the Equinox crossover outsold the Cruze, Malibu and Impala cars combined in June. Ford announced last month that it’s moving production of its Focus compact car from Michigan to China and can afford to take a yearlong hiatus in between because demand has fallen so dramatically.

Light-truck sales tend to strengthen in the second half of a year, meaning demand could go even higher in the coming months. During the past eight years, 52.2 percent of light trucks were sold from July through December. GM officials said they expect the industry’s selling rate, which has been less than 17 million for four consecutive months, to rise in the summer and fall.

Mohatarem: Positive outlook

“U.S. total sales are moderating due to an industrywide pullback in daily rental sales, but key U.S. economic fundamentals clearly remain positive,” Mustafa Mohatarem, GM’s chief economist, said in a statement. “Under the current economic conditions, we anticipate U.S. retail vehicle sales will remain strong for the foreseeable future.”

Any increase in demand probably wouldn’t be enough for full-year volume to surpass the record 17.55 million vehicles sold in 2016. First-half sales were 2.1 percent lower year over year.

If that pace continued unchanged, 2017 would finish with sales of 17.18 million, roughly matching the industry’s total from 2001 but behind 2016, 2015 and 2000.



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