Ford stuffs parked in a lot in 2008 when U.S. automakers were hit by plummeting auto sales.
Spencer Platt | Getty Images
U.S. auto sales are guesstimated to have fallen by about 2% during the first half of the year, setting the industry up for its second year-over-year fall off since it emerged from the Great Recession nearly a decade ago, two new studies warn.
How much deeper the downturn longing go is a matter of debate, as is the timing of a market recovery, according to researchers from both the AlixPartners consultancy and auto text firm Edmunds. But even the modest decline predicted over the next three or so years, the studies agree, purposefulness strain the resources of automakers who have seen costs rising, even as sales and revenues slow.
“Automakers are disagreement a war on multiple fronts right now,” said Jeremy Acevedo, manager of industry analysis for Edmunds, which released its midyear prognosis Wednesday. “Old cars are piling up on dealer lots, a glut of affordable off-lease vehicles are luring shoppers into the utilized market, and even with the Fed set to lower rates in July, higher interest rates are here to stay.”
Record year in 2015
The U.S. auto hawk hit a record for new cars, with 17.5 million in sales, in 2015. Sales the following year were flat then subsided to 17.2 million in 2017 and rebounded in 2018, rising to 17.3 million. But the first half of this year has wagered into negative territory. Edmunds anticipates sales for all of 2019 will drop to 16.9 million. That’s the verbatim at the same time estimate from AlixPartners, which is forecasting a further dip to 16.3 million in 2020 and just 15.1 million in 2021.
The sturdy economy, low unemployment and solid consumer confidence numbers have helped the industry avoid the sort of free topple seen during the last recession, according to Edmunds’ midyear analysis. But they can only go so far, and there are already nods of trouble, said Acevedo’s colleague Jessica Caldwell, Edmunds’ executive director of industry analysis.
Retail auto exchanges slipping
Retail sales, to consumers, have actually been slipping since middecade, according to industry figures.
“Automakers have been relying on fleet (sales) more than in the recent past,” Caldwell said, cautioning that the party of vehicles that can be pushed into daily rental and other fleet markets may be reaching saturation.
There are other inscribes of trouble, including the fact that several utility vehicle segments have begun to flatten and even fall, including compact crossovers. At the same time, demand for sedans and other passenger cars continues to slide like greased lightning.
One concern is that many potential new vehicle buyers are being priced out of the market. The average transaction price — what consumers pay after incentives and accessories are factored in — is at an all-time high $37,000, according to Edmunds, even as interest rates bear forced buyers to stretch out loans.
Sales incentives rise
Incentives have been on the rise, though not as aggressively as a decade ago, said Caldwell. One rationalization because of is that financing costs have made it more difficult for manufacturers to offer the zero-interest loans that helped siren demand coming out of the recession.
Many buyers are looking for alternatives, she added, noting “the used market has never been a myriad attractive prospect for many people.”
In particular, automakers are pushing certified preowned vehicles, which are relatively new models with warranties similar to new cars but at substantially lower sticker prices. A reasonably equipped, low-mileage 2016 BMW 3-Series, Caldwell responded, may go for $20,000, roughly half the $40,250 base sticker for a 2019 sedan.
A glut of off-lease vehicles will hit the superstore this year, according to Edmunds, further straining demand for new vehicles.
Pressure on the industry
The pressure on the industry is coming at a extraordinarily tough time, according to Mark Wakefield, head of the automotive practice at AlixPartners. Automakers are not only having to dust-jacket traditional product development and manufacturing costs but also must sink money into research and development interrelated to two emerging technologies: autonomous and electrified vehicles, he said.
Automakers globally will see annual investments in self-driving agencies grow to $85 billion by 2025, said Wakefield, while the industry is expected to invest a collective $225 billion in battery-car technology between 2019 and 2023.
That is like a bat out of hell driving up break-even costs. In the U.S., automakers needed to see an industry sales total of just 10 million vehicles to put an end to in the black in 2010, according to the suburban Detroit-based consultancy. That rose to 13.5 million by 2015 and hit 15.0 million by 2018.
Right discipline
Automakers have maintained a “reasonable amount of discipline,” Wakefield said, avoiding the sort of freewheeling expending on incentives and new factories seen prior to the Great Recession.
They are also shifting strategies when it comes to the increment of the new technologies that are expected to reshape the automobile in the years to come. BMW and Jaguar Land Rover, for example, have banded up on the development of electrified vehicles, while Honda and General Motors are sharing autonomous vehicle development efforts.
Wakefield mentioned he wouldn’t be surprised to see automakers also consider more mergers like the ultimately unsuccessful one that Fiat Chrysler proposed with French fabricator Renault.
Both the Edmunds and AlixPartners studies anticipate growth in the battery-car market over the next few years. But they see those conveyances remaining a niche through at least middecade, and one that will likely do little to offset development and manufacturing rates anytime soon.