The US is the second largest auto market in the world, second only to China. The US is also the largest market for automakers like General Motors (GM), Ford (F), Toyota (TM) and Fiat Chrysler Automobiles (FCAU) and the majority of their revenues are generate in this country.
However, weak sales for the second consecutive year, have automakers worried about the future of the auto industry. Sales in US have been see-sawing since the beginning of this year. The first 7 months of this year showed a drop of 2.9% in auto sales year-over-year. The silver lining was the low oil prices, which help boost truck sales, which in turn helped cushion the sharp fall in small car sales this year.
The industry’s annualized sales have been 16.1 million units in the light vehicles (small car) segment, well below the predicted 16.4 million, as well as compared to 2016, where the figure was 17.2 million. In the last few years, the trend has been that truck and Utility Vehicle sales have beaten small car sales. However, this year has been worrisome with an overall decrease in sales in both segments. Light vehicles such as four door sedans, two door coupes, convertibles, hatchbacks and station wagons have shown a decline of 12% in sales. However, light trucks sales were up 4%. Light trucks include crossover “SUVs” (they are bigger than cars, but smaller than SUVs), pick-up trucks, minivans, regular SUVs. Heavy commercial vehicles like medium and heavy trucks and other vehicles constitute another segment of the auto market. Light truck sales accounted for 63% of total auto sales this year.
As of the 28th of August, GM (General Motors), one of the Big Three Detroit automakers, and the largest automaker in the US, gained 1.9% year-to-date (YTD). A breakdown of the segments shows that there was a drop in the sales of the Buick and Cadillac, majorly contributing to the 15.4% in light vehicle sales. However, this gain was much lower than the S&P 500 gain of 9.2% for the same period.
Ford Motor (F), fell 11% YTD. A closer look at the segment wise sales gives a more interesting, and less worrisome picture. While light vehicle sales were down, Ford’s F-series trucks continued to be in high demand, with sales for this segment going up 9.8% year-on-year.
Fiat Chrysler is, on the other hand, riding a wave of success, as its sales improved by about 64.2% YTD. Fiat Chrysler has been continuously focusing on its profitability this year and this improvement is the result of those efforts.
Hyundai Motor Co. and its sister company Kia Motors Corp, Korea’s largest automaker, reported a combined drop of 15% in car sales. Nissan Motor Co. also reported a 13% drop in car sales YTD. Toyota Motor Corp. sales went up almost 7% and Honda Motor Co. sales fell by 2%.
While the numbers are worrisome, a few other points need to be kept in mind.
- A lot of the automakers are reorganizing their target markets. The rental market, which usually buys fleets of vehicles, is a low profit market for the automakers. And companies like Fiat Chrysler have been consciously cutting down sales in that segment.
- A shift in buyers’ preferences would also have a short term impact on the auto industry while automakers adjust to the new trends. There is a clear shift towards light trucks vis-à-vis light vehicles.
Auto sales are predicted to shoot up in the coming months thanks to the devastation caused by Hurricane Harvey.