Retail

After Six Years Of Solid Sales, Has Auto Industry Peaked?

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Auto sales saw a big drop in August but posted record-breaking numbers last year.

After six years of steadily increasing sales, culminating in record figures for 2015, auto sales finally appear to be sputtering out.

Or are they?

Last week, auto manufacturers reported that total vehicle sales fell by about 4.1 percent for the month of August, leading many industry experts to predict that demand for new vehicles is slowing down and 2016 sales figures won’t come anywhere close to the record number of vehicles sold in 2015.

“As we look at the remainder of the year, the industry faces an uphill struggle to match last year’s performance,” Jeff Schuster, senior vice president of forecasting at LMC Automotive, said in a statement predicting the lower August sales figures, which industry experts predicted could be anywhere from 2–5 percent off last year’s August numbers. “With mixed economic signals, it certainly looks like U.S. auto sales may have peaked in 2015. However, it is important to focus on the sustainable high level of demand. Peak does not mean doom and gloom.”

So, what’s behind these dwindling sales numbers, and is it really time for the auto industry to panic?

Well, Schuster’s prediction that the drop in sales does not automatically equal “doom and gloom” for the auto industry is probably closer to the truth.

First off, consumers probably just simply aren’t in the market for new vehicles right now.

There were 17.4 million new vehicles sold in the U.S. last year, a figure that has steadily risen each year from the 10.4 million vehicles sold in 2009 during the peak of the recession.

That’s millions and millions of vehicles sold over the past six years, and with Americans now hanging onto their cars for a record length of 6.5 years, many might simply not be in the market for a new car at the moment (or for the next several years).

Most auto industry analysts still believe manufacturers will see around 17 million or so in total sales this year, which is still a pretty healthy number and way ahead of where things stood during the recession.

“We don’t see the industry taking a huge dip, and this is still a high level of sales,” Michelle Krebs, an analyst for Autotrader, told The New York Times when the disappointing sales totals for August were released on Sept. 1. “The big question is how each automaker is going to react to slower demand.”

A second reason for the appearance of a decline could be because the growth in auto sales since the recession of 2009 — which saw many new consumers hold off on replacing their old vehicles due to fears of economic uncertainty — truly heralded a record period for the auto industry.

Tom Libby, an analyst for research firm IHS Markit, told NYT that the auto industry has never enjoyed a period of more than six consecutive years of rising sales since automobiles began to become the standard means of travel for most Americans in the 1920s.

“It would actually be unusual if the industry were to rise this year as well,” Libby noted.

And third, consumers’ tastes and trends in vehicles appear to be changing, too.

There is a shift emerging in vehicle-buying trends toward SUVs and trucks because consumers are no longer worrying about the price of gas as much (thanks to ramped-up domestic production), and they want the extra size or storage space that a truck or SUV might offer or the all-wheel or four-wheel driving capabilities during inclement weather.

Sales of trucks and SUVs actually rose 2 percent in August against car sales that declined by more than 12 percent, according to information from Autodata.

In fact, of all the major automakers, Fiat Chrysler was the only one to report positive sales for the month of August, seeing a 3 percent rise, fueled largely by sales of its Jeep models; Land Rover, which specializes in luxury SUVs, saw a jump of more than 15 percent in its monthly sales in August.

“Practicality wins in vehicle buying right now, and sport utilities have become the new family transport, as they are seen as more practical and versatile than sedans,” Krebs told TheStreet. “Compact and midsize SUV sales are being fueled by aging Baby Boomers, who find it easier to slide into utilities than plop down into sedan seats, and maturing millennials, who find it easier to install child seats into utilities than sedans.”

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