Pop the champagne, don't spare the caviar. The New Year has begun with a bang. Or, more precisely, the old year ended with one, December car sales delivering a much-needed boost to an auto industry still feeling the cold chill of its worst downturn since the Great Depression.The holiday season saw Santa leave some nice gifts for the industry.
And the last-minute push past partisan gridlock that avoided an economic meltdown (can we all now abandon last year's tired clich?, "fiscal cliff"?) suggests that 2013 will maintain momentum. By most estimates, we'll see new vehicle sales surge somewhere into the low to mid-15 million range this year, and a new forecast by RL Polk predicts we could be looking at volumes of 16 million by mid-decade.
That's great news. At least it should be if you work for an automotive company or supplier or have some auto shares in your stock portfolio. If you're a car buyer, well, the story might not be so bright. Here's why it all depends on where you are in the consumer food chain.
Let's look at it from the industry perspective for a moment. The holiday season saw Santa leave some nice gifts for the industry. A long line of brands, including Nissan, Audi, Porsche, Subaru, Hyundai and Jeep, set all-time records last year. Bankrupt barely three years earlier, Chrysler Group wrapped up a string of 33 consecutive monthly sales gains.
While Toyota could claim Camry as the best-selling passenger car in the US, Ford could counter with the world's number one seller in the form of the Ford Focus, while the F-Series again topped the overall US sales chart. And Ford's Blue Oval was the only brand to top the 2 million mark in the US last year.
Even the losers were winners. While Mercedes-Benz decided not to go toe-to-toe with BMW in the final weeks of the year, ceding luxury segment leadership to its Bavarian rival (if you subtract Sprinter sales), Mercedes still hit its own new record and generated more than enough earnings to offset a slowdown in China and a downright disaster in Europe where the car market is beginning to resemble what happened in the United States only a few brief years ago.Foreign makers are once again looking to the States to buoy their bottom lines.
There was a time when the US was the world's largest and most profitable automotive market. Don't expect to see us regain our sales lead. Barring a total meltdown, China has that title locked down for good. But profits? Well, that's another matter entirely.
We've already begun to see some substantial numbers from Detroit's Big Three ? despite the massive losses General Motors and Ford have racked up in Europe. And foreign makers are once again looking to the States to buoy their bottom lines. And we're just at the beginning.
Tom Libby, Polk's senior analyst for North America, is talking "all-time record" profits for the stronger makers by mid-decade if things don't take a disastrous turn for the worse, such as a complete collapse of the European Union.
Now, those who've been following the auto industry for some time may notice something odd about this math. Recall that Polk ? and other analysts ? are only talking sales of around 15.3 million this year, perhaps reaching 16 million by 2015. That's a far cry from the 17.5 million vehicles that were sold in 2005, the industry's all-time record.The Detroit makers can look forward to being fat and happy if they just maintain some discipline.
Don't expect to see us reach that level anytime soon, Libby cautions. But that's actually the good news, he says, referring to the previous peak as "artificially high." He explains, "there was way too much capacity which was forcing manufacturers to use a lot larger incentives." For many manufacturers ? Detroit's Big Three, in particular ? the higher the sales the worse the losses, and it nearly drove them into extinction.
It did plunge two of them into bankruptcy, and even though Ford sidestepped Chapter 11 it echoed GM and Chrysler by radically slashing production capacity. So, in even a 15 million market with lower shares, the Detroit makers can look forward to being fat and happy if they just maintain some discipline.
And so far they have ? which is why the news may not be so good for consumers. (You were, of course, expecting me to get back around to that.)
You see, conditions "were almost ideal for manufacturers" in December, explains Jesse Toprak, Senior Analyst for TrueCar, "as the industry spent less money on incentives while attaining higher net transaction prices in the marketplace compared to year-ago levels.There's plenty of history to show that manufacturers can get greedy or nervous and start dumping product on the market.
Come again? Average transaction prices, or ATPs, are what buyers actually wind up spending to drive off the lot, on a collective basis. And once you add in options, subtract incentives and all that, December saw an industry average of $31,228, up $542 or 1.8% from a year earlier, and $396 or 1.3% from November 2012, according to TrueCar.
The number can be distorted by buyers getting generous with the options ? as can happen in the holiday season ? so let's look at another trend that should be worrisome if you're on the buying side of the equation: incentives were down by 9.0 percent year-over-year. That can vary on a monthly basis but the trend is clearly on the decline. And no wonder. If you're not over-building you don't have to worry as much about bribing customers to come into your showrooms.
As mentioned earlier, it all depends on the industry maintaining discipline. There's plenty of history to show that manufacturers can get greedy or nervous and start dumping product on the market. But this past recession really showed what happens when the industry gets too deep into its own version of mutually assured destruction.Even though incentives may be down and prices up, makers are facing more competition than ever.
The news isn't all bad for consumers. Even though incentives may be down and prices up, makers are facing more competition than ever. That means price hikes must still be restrained while they're under continuous pressure to add newer and better features, improve quality and reliability and boost both mileage and performance.
So, maybe it's time for everyone to celebrate. Want to pass the champagne?
Source: http://www.autoblog.com/2013/01/06/the-good-news-and-the-bad-news-about-december-car-sales/
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