It’s Official: The U.S. Auto Industry Is in a Slump
The auto industry is experiencing some trouble after its fourth straight month of decline. This has many automakers looking for potential solutions to their declining sales.
Yet this decline continues on despite hefty consumer discounts, low interest rates, and looser loan terms than ever before. With 43% of car buyers financing their vehicles, these favorable conditions should be attracting more buyers. Yet there is already strong evidence that 2017 will fall short of the record year seen in 2016.
Industry consultants Autodata puts the industry’s sale rates at 16.51 million vehicles this year, which is the lowest rate since 2015. However, the auto industry has been bracing for this downturn since their record sales of 17.55 million new vehicles in 2016. Unfortunately, some overly generous lending terms may have had unintended consequences.
“It’s financially risky, leaving borrowers exposed to being upside down on their vehicles for a large chunk of their loans,” said Jessica Caldwell, Edmunds’ executive director of industry analysis.
All three of the Detroit-based auto makers reported declines in July, with wide ranges for their hits. General Motors lost 4.7%, and Fiat Chrysler suffered a 7% loss. Foreign-based brands like Toyota are faring a little better, seeing a 2% increase in the last month.
Even automakers are starting to trim their forecasts for what the future sales look like, with General Motors lowering theirs to the “low 17-million” range, a more positive outlook than some others.
“U.S. total sales are moderating due to an industry-wide pull-back in daily rental sales, but key U.S. economic fundamentals clearly remain positive,” Mustafa Mohatarem, GM’s chief economist, said.
In addition to this, the U.S. has seen a shift in demand for automakers in the last five years, with SUVs and truck models now accounting for nearly two-thirds of the demand. This has led to more expensive trucks, and the average transaction price is rising sharply. KellyBlueBook reports that the average auto transaction is now $34,442, a 2% increase from year-to-year.
“As the industry enters a ‘post-peak’ environment for new-car sales, more pressure will be placed on transaction prices,” said Tim Fleming, an analyst for KelleyBlueBook.
This could lead to a risk of job cuts to the industry, should it come under greater pressure.