SUVs, Sedan Decisions and Rates to Help Shape 2018 Auto Winners
What will separate U.S. auto industry leaders and laggards in 2018? There’s a clear divide.
(Bloomberg) -- It’s hard to fathom a clearer case of the haves and have nots than the U.S. auto market in January.
Among the eight major carmakers that are part of Bloomberg News’s monthly survey of analysts, there was a nearly even divide between those that beat or missed estimates for January sales. Companies were equally split reporting an up or down month.
In the end, the industry eked out a 1 percent increase in car and light truck sales, according to Autodata Corp. Of course, any growth is welcome coming off the first annual U.S. auto contraction since the recession. And plenty of hints emerged in January as to which companies are well or poorly positioned to rebound in 2018.
Here’s an early look at the dynamics that’ll determine this year’s winners and losers, though take it with a grain of salt. As AutoNation Inc. Chief Executive Officer and chairman of the Atlanta Fed Mike Jackson put it: “I always am reluctant to spend a lot of time thinking about the month of January.”
Ride the SUV Wave
The defining trend for the industry in recent years that’s almost certain to continue into 2018 is consumers’ shifting preference toward sport utility vehicles over traditional sedans.
Toyota Motor Corp.’s RAV4 and Nissan Motor Co.’s Rogue crossovers, having soared ahead of all passenger cars in the U.S. last year, continued their ascent in January, along with General Motors Co.’s Chevrolet Equinox, which is benefiting from a redesign.
Other automakers weren’t so successful.
“As we move through the year, we will perform better in all SUV segments,” Mark LaNeve, Ford’s U.S. sales chief, said on a conference call after the company reported a 5.9 percent drop in utility sales. “We’ll be updating Edge later this year and Escape not too far off in the future.”
Car Caution
Some thought Sergio Marchionne, the chief executive officer of Fiat Chrysler Automobiles NV, was a madman when he killed off several of his mainstream sedans. Now he looks prescient: Ford and GM are reconsidering the merits of investing more in cars that keep struggling to compete with leading Japanese models.
Each of Toyota, Nissan and Honda Motor Co.’s top-selling cars gained in January, while Ford and GM’s lead car offerings saw double-digit declines.
“If you are one of the strong players in a shrinking segment, it can make sense for you to do the normal level of investment and resource allocation,” said Mark Wakefield, head of the auto practice at consultant AlixPartners. “If you’re more of an also-ran in that, then you can more seriously question how much resources should go in there and how fast you should be refreshing.”
Retail Reckoning
Changes are also afoot in the relative health of automakers’ sales. Deliveries to consumers are usually more profitable than bulk shipments to rental-car companies. Retail strength also is typically considered a better sign of underlying demand and product appeal.
Detroit automakers, long notorious for over-reliance on fleet sales, have become more transparent about efforts to wean themselves from cheap-and-easy deals.
Last month, Fiat Chrysler made the biggest stride by slicing fleet sales in half from a year earlier. The Italian-American automaker’s profit margins and stock price have been on the rise throughout a 17-month stretch of declining total U.S. deliveries.
Nissan and Toyota, meanwhile, went in the other direction last month. The companies kicked off the year by boosting sales to fleets by 48 percent and 69 percent, respectively.
Interest Rate Rise
Car sales have been turbocharged for years by low interest rates. They’re heading higher as the economy improves, a trend that could test automaker-owned lenders in 2018.
Those who run the showrooms are unperturbed.
“Credit will be available; it will be affordable,” AutoNation’s Jackson said in a phone interview. “There has to be steps toward normalization -- and the economy can handle it.”
There will be some impact from rising rates, said Judy Wheeler, Nissan’s vice president of U.S. sales. But the tax bill passed at the end of last year may be a mitigating factor.
“These will kind of offset each other,” she said. “Whenever people see more money coming back, they’re more likely to afford the purchase of a new vehicle.”
--With assistance from John Lippert
To contact the reporters on this story: Jamie Butters in Southfield, Michigan, at jbutters@bloomberg.net, Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net.
To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Anne Riley Moffat
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