Detroit’s automakers are cutting record profit-sharing checks and selling vehicles at a historic rate.
But those markers of success don’t obscure a deeper reality that threatens to impact jobs, influence investment and affect the ability of automakers to meet tough federal fuel-economy rules: car sales are tanking.
And they’re likely to continue tanking so long as gas runs closer to $2-a-gallon and the industry produces more fuel-efficient vehicles. That’s giving American consumers the collective green light to pile into the pickups and SUVs of all sizes, fattening bottom lines from Detroit to Japan and Germany.
“Passenger cars will continue to face downward pressure,” says Warren Browne, former General Motors Co. executive who now is head of WP Browne Consulting. “Premium car brands will not be exempt from this trend. All of the innovation is happening on the truck side of the business. That’s where the profit is.”
Cars currently account for roughly 40 percent of the vehicle market, a nine-point reduction from the 49 percent they claimed a decade ago. Credit falling gas prices, dramatically expanded offerings of all sizes in the SUV space and the growing popularity of leasing, which makes more expensive vehicles more attainable for more people.
Five GM car plants — all of which build cars for the nation’s number one automaker — have been ordered in recent months to take downtime. Those include Detroit-Hamtramck, Lansing Grand River and Lordstown, Ohio, in part because sales of its Chevrolet Cruze slid more than 16 percent last year.
Worse, inventories of GM cars are running sharply higher. Last month, according to Autodata Corp.’s Motor Intelligence, GM’s Buick division reported a 279-day supply of cars, more than three times the industry standard. Ford Motor Co.’s Blue Oval, by comparison, reported 98 days’ supply and Lincoln 91 days.
You want to know why the automakers are cutting car production? That’s it. And the data isn’t encouraging. Altogether, car sales for the Detroit three slumped 13.5 percent last year compared to 5.9 percent for foreign-owned brands and 8.1 percent for the U.S. market overall.
GM slipped 4.3 percent. Ford dropped 14 percent. And Fiat Chrysler Automobiles NV dropped 33.6 percent, signaling clearly the automaker’s plans to abandon small-car lines (and small-car production) in the United States. Starting next year, Canada will be the only source for FCA’s limited car production.
Whether the shift is permanent, as FCA is betting, depends on variables the automakers cannot control. Namely, the price of gasoline, geopolitics and macroeconomics in the Trump age, and how all of their interdependent gyrations could affect consumer behavior.
Ford is killing production of compact cars in the United States and replacing it with a revived Bronco SUV and a Ranger small pickup. And what seems like all automakers are introducing more SUV models to a market that seems to absorb just about any size and shape the industry can produce.
Foreign-owned marques aren’t resorting to such drastic measures yet, but the car trend is similar. According to Autodata numbers for all of last year: Audi down 6.7 percent; BMW down 21.2 percent; Fiat down 33.4 percent; Hyundai down 5.7 percent; Infiniti down 16.9 percent; Toyota down 8.7 percent; Mercedes-Benz down 11.4 percent.
Only Honda among the major brands saw its annual car sales increase last year, evidence that this lengthening trend is not another problem manufactured only in Detroit. It’s reshaping an industry that is facing more change over the next few years than probably any time in the last 50.
The irony? That automakers can lose car sales and still post record (or nearly so) profits in the U.S. market. That ever-tougher fuel-economy standards are not slowing sales of the vehicles they’re intended to corral, in part because neither oil prices nor customer sentiment are hewing to the preferred political end.
Instead, trucks and their sister SUVs remain the industry’s cash cows. That’s likely to continue unless the Trump administration makes good on threats to levy tariffs on Mexican-made vehicles, interrupting the joy ride that would have been impossible to imagine in 2008 and 2009.
If the tariffs are realized, GM and FCA stand to get whacked harder than Ford. The Dearborn automaker still produces all of its F-Series pickups and all of its current SUV lineup in the United States, a competitive advantage it’s not likely to cede in today’s environment.
It shouldn’t. The car market is experiencing a historic shakeout, meaning companies like Ford will need to sell every truck and SUV they can to keep the good times rolling.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.