Howes: Auto sales downshift reveals Detroit character

Daniel Howes
The Detroit News

Brace yourself, Detroit: the auto sales tear won’t will not last forever.

What a surprise. If August numbers out Thursday are any guide — and they probably are — the record pace begun in 2010 is beginning its downshift into a more normalized range that still looks hot enough to close the year with more than 17 million vehicles sold.

Relax. Easing from a record pace to what General Motors Co.’s chief economist, Mustafa Mohatarem, calls “a sustainable high level of consumer demand” is not a road straight to recession. But it is a reminder that, yes, business cycles still exist and pent-up demand is not self-perpetuating.

Big picture: Fiat Chrysler Automobiles NV posted a 3 percent gain, powered by Jeep and Ram. Its Fiat and Chrysler brands each slumped more than 20 percent, underscoring that the Italian-American automaker is all about trucks and iconic SUVs, not the cars it will need to help meet stiff federal fuel economy rules.

GM slid 5.2 percent, with only its Cadillac brand in positive territory. Ford Motor Co. dropped 8.4 percent, despite a strong performance by its chronically lackluster Lincoln brand, now in what feels like its umpteenth reimagination.

Bad news? Don’t be so sure. Beneath the headlines reporting slipping sales, reflected across the industry, is encouraging news that underscores just how far Detroit’s automakers have come from the bleak days of 2008 and 2009: Average transaction prices, or ATPs, a marker of how much customers are willing to pay for their new ride, are rising.

The numbers are encouraging, especially for Detroit’s Big Two. Lincoln’s August ATPs, to invoke the industry lingo, rose $1,200 per vehicle over July. GM pegged the same metric at $1,600 per vehicle — and $5,800 above the industry average.

Translation: Detroit is not only building cars and trucks consumers want to buy. It’s building cars and trucks that buyers are willing to pay more to own or lease, a reversal of the self-inflicted predicament that contributed to the industry’s near-total collapse into bailout, bankruptcy and ridicule.

Now comes the fun part. After years of record U.S. profits, operating margins north of 10 percent, fat salaried bonuses and profit-sharing payouts to hourly workers, we’re going to start seeing with more clarity just how good — or mediocre — the relatively new leadership is at General Motors and Ford, especially.

For GM’s Mary Barra and Ford’s Mark Fields, the first few years of their respective tenures have been blessed with strong macro-economic conditions to buoy the base car and truck business: low interest rates, cheap gas and an aging vehicle fleet (roughly 11 years old) that correlates to pent-up demand.

As ingredients for robust auto sales go, that’s about as good as it can get. Until demand begins to ebb. Until cheap credit and low gas prices and rising consumer confidence fueled by strong equity markets plateau. Eventually sales will follow, as they appear to be doing now.

Management challenges are likely to shift — from maximizing production to managing inventory, from expanding market share to balancing profit-sapping incentives, from satisfying demand with existing metal to quickening the cycles of product refurbishment to stimulate demand.

That’s not bad; it’s different. And it’s a battery of tests that will begin to reveal whether the New Detroit that emerged from the taxpayer-financed bailout has learned anything from the arrogance and over-reach of Old Detroit.

For years now, Detroit’s blow-the-doors-off financial performance in the United States has failed to move automakers’ share prices. With the memories of the 2008 meltdown still fresh, and challenges from Silicon Valley looming, investors are taking a decidedly show-me approach.

Who can blame them, given Detroit’s history of incinerating capital and fielding too many mediocre products? Any move into a more normalized market, coupled with the complex challenges coming from the mobility space, gives these companies and their leadership a chance to show what they can do.

They need the chance — and they know it. Go to GM’s investors page. It’s all right there under a headline that reads, “GM is a compelling investment opportunity.” The chatter continues: “What makes General Motors a compelling investment for the future is not only our performance today — but our vision for transforming transportation.”

Maybe so. The difference between vision and reality is execution. If there’s anything would-be investors want to see it’s that Detroit can make smart bets and manage effectively in tough(er) times.

(313) 222-2106

Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.