Carmageddon

Posted By Darren Winters on Jul 10, 2019


Carmageddon

Automakers in the US and Europe are experiencing Carmageddon, which is loosely defined as dismal demand for passenger cars. The retail brick and mortar meltdown is now spreading to Carmageddon, despite the so-called “economic recovery”. 

Carmageddon is now official as the auto industry reports its biggest challenges since 2009 in a climate of waning consumer demand for passenger cars

Auto sales are down significantly since 2019. The industry is already adjusting to this extremely challenging environment with massive job cuts up 207% over the last year, which is the largest ever auto job cuts since the 2008 economic meltdown.

Carmageddon is taking on meaning in Europe too

Auto experts are talking about a German car nightmare admixed Brexit and talks about ramping up trade tariffs continue to chip away at business confidence. Car expert Ferdinand Dudenhöffer said the industry is approaching crisis mode as he claims global car sales are set to plunge this year. He warned how 12 of the world’s 15 largest auto markets are showing declining sales, and anticipated sales of new cars worldwide will drop by just over five percent, to 79.5 million. 

The current Carmageddon is expected to be worse than that experienced during the economic crisis of 2008, according to auto analysts

Carmageddon

Carmageddon in the US isn’t a pretty sight either with total US auto sales down in the first half of 2019 2.4% to 8.4 million vehicles. This puts new vehicle sales on track to fall below 17 million units for the year making it the worst level for auto sales since 2014.

For the US market Carmageddon is a trend where the domestic market is no long longer excited about buying news “cars” and instead are buying new pickups, SUVs, compact SUVs, and vans. 

But the silver-lining for automakers is that these vehicles have far higher price tags and profit margins than cars. For example, trucks have been a bright spot for Ford with sales increasing to 7.5% to 324,243 units. But within that category, F-series pickups fell 1.3% to 233,787 units, as it lost market share to Ford’s mid-size pickup. Nevertheless, Ford’s SUV sales were weak, falling 8.6% to 215,898 units.

Auto manufacturers are surviving Carmageddon by raising prices in their niche market

Ford Lincoln Nautilus SUV rose by $3,700, or 9%, to $44,300 in Q2, compared to the 2018 Lincoln MKX in Q2 last year. In reality, it is the same vehicle with a new name, a 9% higher ATP, a couple of updates, and about the same cost of manufacturing. So Ford is able to increase its revenues and profit margins in their niche markets. 

F-series, which range from a base work truck to fully decked out crew cabs and beyond, rose by $1,200, to $47,500.

Ford is also tackling Carmageddon with its cheapest vehicle, a car which has had huge gains in sales. Fiesta deliveries jumped 70% in the quarter to 22,173 vehicles, and are up 50% so far this year. This is now Ford’s second-bestselling car, after the Fusion (+11% year-to-date). 

So Ford’s Fiesta sales is an indication there is still demand decent entry-level cars, despite Carmageddon. But with a base sticker price of $14,200, there is a very little profit margin for Ford, and it has no incentive to market them.

GM sales also fell 1.5% in Q2. Sales for GM plunged 7% in Q1 compared to a year earlier

In Q2, sales fell only 1.5% to 746,659 units, GM reported yesterday. Truck, crossovers, and deliveries offsetting lower passenger car sales, according to GM’s spokesperson. Expensive crew cab pickups were buoyant. Sales of the Chevrolet Silverado 1500 crew cab and GMC Sierra 1500 crew cab jumped 12%. 

GM, like Ford, was able to increase prices in its niche market. The ATP of all its sales increased by $1,575, or 4.4%, to $37,126. 

Sales of Ram pickups were also buoyant, with sales jumping 56% in the month of June, to bring Q2 sales to 179,454 vehicles. That’s approximately a third of FCA’s total sales! 

Fiat Chrysler Automobile also experienced a sales decline of 0.5% a year ago, to 600,460 units, after having fallen 3.1% in Q1.

In Q2, FCA’s sales declined 0.5% from a year ago, to 600,460 units, after having fallen 3.1% in Q1. For the first half, sales fell 1.7% to 1.1 million units, putting FCA in fourth place, behind GM, Ford, and Toyota. 

There was also Carmageddon at Toyota, the world’s largest automaker

Toyota sales fell 0.9% in Q2. Toyota reported June sales yesterday, which fell 3.5% from a year ago. This brought sales in Q2 to 675,183 units, down 4.1% from a year ago.

But unlike other US auto manufactures Toyota didn’t experience a pick up in sales of trucks. Truck sales fell 0.2% in the first half to 720,304 vehicles.

For the automakers surviving Carmageddon means enticing customers into bigger, more expensive models, those are the ones with bigger profit margins

That can work with oil prices being at a reasonable and affordable level, but that strategy might not be so effective in a high oil price environment.

Carmageddon could spell shorters delight for autos going forward.

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