The end of cars’ record sales streak

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“The auto industry’s long-running sales party has come to an end,” said Neal Boudette at The New York Times. Following seven straight years of growth, U.S. sales of new vehicles slid last year, to 17.2 million cars and trucks, a decline of 1.8 percent from 2016. With estimates already suggesting that 2018 will bring “an even larger drop,” analysts say carmakers have reason to be concerned about challenges on the horizon. Interest rates are on the rise, tariffs and trade changes loom from NAFTA renegotiations, and fuel prices, “though still low by the standards of recent years,” are up 14 cents, to $2.49 a gallon, from this time last year. The market is also saturated: The longest period of sales growth “since the infancy of the automobile nearly a century ago” was driven largely by the end of the recession. As the economy improved, consumers who had put off new purchases “rushed out to replace the clunkers they’d been driving.” But now there are 1.26 vehicles on the road for every licensed U.S. driver, the most ever. Then there is the matter of the industry’s expensive shift to autonomous and electric vehicles, even though it remains unclear “how many they will be able to sell, and when.”

Detroit needn’t panic just yet: The industry is “still selling lots of cars and trucks,” said Russ Mitchell at the Los Angeles Times. Sales in 2016 were a record-high 17.5 million, so last year’s total is more “a gentle dip” than a steep decline. And from another angle, last year was record-setting in its own right, with the average price of a vehicle hitting an all-time high of $36,113. That’s because Americans have increasingly bypassed smaller sedans for pricier trucks, SUVs, and crossover vehicles; “for the first time, the majority of Audi’s sales were in SUVs and crossovers,” for instance. Analysts attribute the shift in part to “tremendous gains” in fuel efficiency, improved handling, and lower gas prices. Crucially, the shift to bigger cars is also “good news for companies’ bottom lines,” said Jamie Butters at Bloomberg. Going forward, companies may decide that lower-margin passenger cars may not be worth the time and investment, while pickups and SUVs will continue to be “moneymakers that fly off dealer lots.” That’s why “carmakers and their investors …read more

Source:: The Week – Business


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