Auto Sales End a 7-Year Upswing, With More Challenges Ahead

The auto industry’s long-running sales party has come to an end.

After seven straight years of growth in domestic new-vehicle sales, manufacturers on Wednesday reported a decline of about 1.8 percent in 2017, to 17.2 million cars and light trucks.

Further dampening the mood is the consensus that 2018 will bring an even larger drop. Edmunds.com, an auto-information website, predicts that just 16.8 million light vehicles will be sold this year.

“Overall, you have to be cautious in this environment,” said Adam Silverleib, vice president of Silko Honda, a dealership in Raynham, Massachusetts. “The industry cycle has peaked.”

Some factors that propelled the upward swing are now fading or changing course. Exceptionally low interest rates are turning higher. And quality has improved, customer-satisfaction surveys have shown, so many Americans are keeping their cars longer.

During the recession, consumers and businesses put off buying new vehicles. When the economy improved, many rushed out to replace the clunkers they’d been driving, driving sales up year after year.

“The market is pretty saturated right now,” said Jessica Caldwell, an analyst with Edmunds.com. She noted that there were now 1.26 vehicles on the road for every licensed driver, more than ever.

The downward sales trend is the latest challenge for the industry. Tariffs could be imposed on cars made in Mexico and Canada if the Trump administration negotiates major changes to the North American Free Trade Agreement. Manufacturers are also trying to push ahead with self-driving and electric vehicles even as it remains unclear how many they will be able to sell, and when.

The effect of rising fuel prices is also a question mark. Though still low by the standards of recent years, prices at the pump were $2.49 a gallon for regular gas on Wednesday compared with $2.35 a year ago, according to AAA.

The seven-year stretch of growth from 2010 to 2016 is the longest since the infancy of the automobile nearly a century ago, according to the automotive publisher WardsAuto. It was born out of one of the industry’s darkest periods: the deep recession that prompted federally backed bankruptcy reorganizations of General Motors and Chrysler. At the low point, 2009, new-car sales plunged to fewer than 11 million a year.

As sales climbed over the past seven years, carmakers had to worry little about keeping their plants humming. Now they are faced with the prospect of trimming production and finding ways to entice customers to buy the vehicles that are rolling off the assembly line.

“It’s challenging for every company,” said Ray Mikiciuk, assistant vice president for sales at American Honda. “It’s a lot easier to operate in a rising market.”

Last year’s drop in sales was mitigated by increased discounts and other incentives, which now equal 11.5 percent of sticker prices, up from about 7 percent a few years ago, said Mark Wakefield, global co-head of automotive and industrial at AlixPartners, a consulting firm. At some point, further increases in sales incentives could hurt manufacturers’ profits, he said.

“We are deep into a push market,” in which consumers have to be lured with deals rather than driven by a strong need or desire for a new car, Wakefield said.

Despite last year’s decline, domestic auto sales remain at a historically healthy level. And worldwide sales are still on the rise: The research firm IHS Markit estimated that global light vehicle sales rose 1.5 percent in 2017, to 93.5 million cars and trucks.

Americans tend to favor cars when gas prices are high, and trucks when prices are low, but this time the shift to trucks has been compounded by an increasing preference for taller, roomier vehicles. That has forced carmakers in recent years to shift the production mix rapidly to emphasize SUVs, minivans and light trucks.

In December, passenger cars made up just one-third of the market. “In 2012, cars were over 50 percent,” said Caldwell, the Edmunds analyst. “That’s a big shift in a short period of time.'’

Sales at General Motors last month reflected that shift. The company had a strong December in trucks, selling more than 94,000 full-size pickups between its Chevrolet and GMC brands, almost one-third of its total sales. But its overall sales still fell 3.3 percent from the previous December, as cars like the Chevy Malibu and Impala languished on dealer lots.

For the full year, GM’s sales declined 1.3 percent, to 3 million vehicles. At the Detroit auto show, which kicks off later this month, GM will unveil redesigns of its full-size pickups.

Fiat Chrysler Automobiles also had a tough month, with sales declining 11 percent. Fiat Chrysler has stopped making small and mid-sized cars, and trucks account for 85 percent of its sales total. But a push to cut back on incentives and sales to rental fleets have slowed the company. Total sales for 2017 dropped 8 percent, to 2.1 million vehicles.

Ford Motor, the second largest U.S. automaker after GM, was one of the few manufacturers to report a rise for December, with sales increasing 1.3 percent. Like GM, Ford had a big month in pickups, selling more than 89,000 of its F-series models.

But for the full year, Ford couldn’t buck the market’s trend. Its 2017 sales slipped almost 1 percent, to 2.6 million vehicles.