Analysis

The end of cars' record sales streak

Following seven straight years of growth, U.S. sales of new vehicles slid last year

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"The auto industry's long-running sales party has come to an end," said Neal Boudette at The New York Times. Following seven straight years of growth, U.S. sales of new vehicles slid last year, to 17.2 million cars and trucks, a decline of 1.8 percent from 2016. With estimates already suggesting that 2018 will bring "an even larger drop," analysts say carmakers have reason to be concerned about challenges on the horizon. Interest rates are on the rise, tariffs and trade changes loom from NAFTA renegotiations, and fuel prices, "though still low by the standards of recent years," are up 14 cents, to $2.49 a gallon, from this time last year. The market is also saturated: The longest period of sales growth "since the infancy of the automobile nearly a century ago" was driven largely by the end of the recession. As the economy improved, consumers who had put off new purchases "rushed out to replace the clunkers they'd been driving." But now there are 1.26 vehicles on the road for every licensed U.S. driver, the most ever. Then there is the matter of the industry's expensive shift to autonomous and electric vehicles, even though it remains unclear "how many they will be able to sell, and when."

Detroit needn't panic just yet: The industry is "still selling lots of cars and trucks," said Russ Mitchell at the Los Angeles Times. Sales in 2016 were a record-high 17.5 million, so last year's total is more "a gentle dip" than a steep decline. And from another angle, last year was record-setting in its own right, with the average price of a vehicle hitting an all-time high of $36,113. That's because Americans have increasingly bypassed smaller sedans for pricier trucks, SUVs, and crossover vehicles; "for the first time, the majority of Audi's sales were in SUVs and crossovers," for instance. Analysts attribute the shift in part to "tremendous gains" in fuel efficiency, improved handling, and lower gas prices. Crucially, the shift to bigger cars is also "good news for companies' bottom lines," said Jamie Butters at Bloomberg. Going forward, companies may decide that lower-margin passenger cars may not be worth the time and investment, while pickups and SUVs will continue to be "moneymakers that fly off dealer lots." That's why "carmakers and their investors aren't fazed" by the latest sales numbers.

They should be, said Patrick George at Jalopnik. "The future is looking scary." Americans are not "magically making way more money" to be able to afford these higher-priced vehicles. What most car buyers are doing now is purchasing cars on "longer and longer" loans, sinking deeper into debt for a vehicle that will be "seven or eight years old when it's paid off — if it ever is." Car-payment defaults are also surging, giving the market the feeling of a "powder keg waiting to be lit." Still, the domestic car business "is far healthier" than it was before the recession, said Mike Colias and Adrienne Roberts at The Wall Street Journal. In anticipation of a softer market throughout 2018, carmakers are already reducing production on assembly lines, with output likely falling 2.3 percent this quarter. If sales nosedive further, "it could prompt carmakers to scale back production even more." In the meantime, their "streak of strong profits" should help them weather the storm.

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