Energized by tax reform, lower fuel prices and high employment the expected second-half slump was less severe than predicted, leading to a strong kick to the finish line for U.S. auto sales. That’s the big picture. A closer look shows passenger cars sales continuing to tank, taking down overall retail results with them.
“New vehicle sales were surprisingly strong in 2018 despite late cycle headwinds from higher interest rates and more nearly-new competition in the used market,” said Jonathan Smoke, Cox Automotive Chief Economist in emailed remarks. “The key positive factor was stimulated demand from tax reform, which strengthened retail demand as the year progressed and also enabled strong gains in fleet sales.”
But the good times are on a glide path to a harsh grounding as rising interest rates, a big change in federal income tax rules concerning the standard deduction and increasing average transaction prices conspire to slow sales momentum.
Looking at sales numbers released today, first the Detroit Three.
General Motors Corp. and Ford Motor Co. reported negative results as 2018 drew to a close. GM, which reports results quarterly, said its sales for the last three months of the year were down 1.6% and down 2.7% for the full year. Ford’s U.S. sales were down 8.8% in December and down 3.5% for 2018. In both cases, declining passenger car sales did the damage.
Fiat Chrysler Automobiles broke the trend on the strength of its Jeep and Ram brands, reporting a 14% increase in December sales compared with the same month a year ago, and up 9% for the full over 2017. This, despite sharp falloffs for its Chrysler and Fiat brands. Dodge was up slightly.
The imports were a similar mixed bag, as they also suffered from the market’s continued abandonment of passenger cars. The lone outlier was Nissan North America reporting an aggregate 7.6% boost in December sales between its Nissan and Infiniti divisions. For the full year, Nissan/Infiniti were down 6.2%.
When results from every company are in, experts predict total industry sales for the year will come in between 17.2 million and 17.3 million vehicles–the fourth best year on record.
But the outlook for 2019 is not as rosy, with several organizations, including Edmunds.com, eyeing sub-17 million sales, at between 16.8 million and 16.9 million units.
For one, an increase in the U.S. federal income tax standard deduction means reduced, or possibly, no, refund for many taxpayers. That’s money often earmarked for a new car.
Affordability is also becoming more difficult for many consumer. Kelley Blue Book reports the estimated average transaction price for a new vehicle in December was $37,577, up 1.3% from December, 2017. That boost was attributed, in large part, to sales of high-priced pickup trucks and SUVs, as automakers trimmed their passenger car lineups.
For consumers who just need an affordable ride, the path is increasingly leading away from the new car showroom.
“In fact, one could argue that demand for cars is strong and affordability concerns are causing potential shoppers to move to the used-vehicle market, where there’s ample supply of desirable vehicles, highlighted by pricing gains in car segments in the wholesale market,” said Zo Rahim, Research Manager for Cox Automotive, in emailed remarks.
But in a conference call with reporters and financial analysts, Ford Chief Economist Emily Kolinski Morris surmised consumers would make adjustments to account for rising prices saying, “individual households make adjustments in different ways, certainly varying a lot with incomes rates they’ve seen they could absorb a slightly higher monthly payment, and others may adjust by changing what they’re putting on the vehicle or changing the segment that they’re playing in.”
There will be no respite from the automakers in terms of new offerings that could be categorized as budget vehicles including the Ford Ranger and Jeep Gladiator mid-size pickups — barely less expensive alternatives to full-size pickups,
As a footnote, December marked the last time Ford will release monthly sales results as the automaker joins GM in moving to quarterly reports, meaning Ford’s next sales report will be in April with first quarter results.
Mark LaNeve, Ford Vice President, U.S. Marketing, Sales and Service, explained the move to reporters and financial analysts, saying, “We believe the intense focus on month-to-month numbers is not the way we want to run the business.” Plus, taking note of GM’s move, LaNeve chalked it all up to change, stating, “It’s kind of transitioning to an industry standard.”