GM North America Pres. Alan Batey introduces the 2017 Chevy Cruze Hatchback at the NAIAS.
It’s been a great ride for the U.S. auto industry. After crashing into the worst recession in decades, it rebounded to record sales of 17.5 million vehicles last year and, until recently, seemed poised to top that number again in 2016.
But there’s been a growing chorus of concern in recent weeks, industry insiders like Ford Motor Co. Chief Financial Officer Bob Shanks warning that the ride is over, and that U.S. car sales are about to start the inevitable slide. Just don’t count General Motors North America President Alan Batey among those who says the downturn is about to begin.
“We think the industry will plateau at some time, but everything we see says that into the near future the industry will remain strong,” Batey told reporters.
Ironically, General Motors has been having a tougher time, of late, than most of its key competitors. Its overall sales were down, again, in July, as they have been for much of the year. The maker counters that it has intentionally shifted away from a traditional emphasis on fleet business to focus on retail sales, instead. By that measure, it saw a 5% gain for the past month, and picked up a full point of retail market share.
Ford CFO Bob Shanks has taken a more bullish view of the U.S. car market in recent weeks.
(GM Q2 earnings double despite sliding sales. Click Here to see the story.)
For the year-to-date, rental car business, in particular, accounted for just over 10% of GM’s total U.S. business. The figures were closer to 15% for Ford, and 21% for Fiat Chrysler Automobiles.
“Our retail-focused plan is working and as availability of our new cars, trucks and crossovers continues to grow, we expect to keep our retail sales momentum going and our strong margins intact,” said Kurt McNeil, U.S. vice president of Sales Operations, in a July sales release.
Whether GM will continue to hold to this strategy remains to be seen. Over the last few decades, it has repeatedly promised to emphasize profits over market share, only to slip back when the economy – and the overall car market – has lost momentum.
Is the market starting to slide now? “The growth is over, Ford Chief Financial Officer Robert Shanks told the Reuters news service last week. The executive separately told analysts and reporters that, “We see the second half being softer than the first half. Looking into 2017, we think we will see further softness.”
(Why is Shanks so downbeat? Click Here for that story.)
And Shanks isn’t alone. A number of industry analysts and planners are growing more bearish. LMC Automotive and AutoPacific, Inc., to cite just two, have downsized their sales forecasts for the second half of 2016 and into the next few years.
While GM President Batey isn’t running entirely counter to the theory that the U.S. market has peaked, he isn’t ready to say the pendulum is already swinging back down.
One reason, he points out, is that America’s automotive fleet is older than ever – an average 11 years for the cars now on the road, despite several years of record vehicle sales. That leaves tens of millions of owners with vehicles they will have to replace.
What they’ll replace them with is a clear matter of debate. Vehicle prices have risen sharply in recent years, and many buyers are turning to alternatives, such as certified pre-owned vehicles, instead of buying new. In fact, that may suggest GM’s newfound focus on retail makes sense.
The industry originally launched CPO programs, in part, to help get rid of a flood of off-lease and out-of-rental vehicles that were piling up on dealer lots. With fewer vehicles going into fleet, GM hopes to see fewer coming back out anytime soon. In other words, its used vehicles will be less likely to compete with its new models.
There could be other reasons why Batey’s more upbeat assessment is accurate. Consider that 60% of full-size pickup sales occur during the second half of the year, he noted. That will keep factories – and dealers – busy in the months to come.
And, if anything, GM is just one of the manufacturers reporting that they’re still struggling to keep up with demand for the market’s stronger crossover and sport-utility vehicles. That’s one reason rival FCA is investing so much in an assortment of plants, converting them over from car to light truck production.
Batey’s bullishness needs to be put into perspective. The U.S. car market remains on an upward trajectory, despite a few recent, weak months. That said, there is little indication it will see double-digit gains anytime soon. The question seems to be more one of when, not if, car sales will begin their inevitable slide. And then, the question analysts and industry planners alike will have to ask is how far down will demand drop.
(Better late than never. Sales of the Chevy Volt finally reach 100,000. Click Here for more.)