Critics are once again predicting the US auto industry is going to tank, but they should be careful of what they wish for.
- For 2018, automakers again posted near-record US sales.
- The 17.3-million total marked the fourth straight year that the total has come in above 17 million - an unprecedented boom.
- The news was greeted, as it has been for several years, by a round of doomsaying about the 2019 market.
- Naysayers have been wrong about a sales downturn for years, but they continue to push a negative outlook.
Automakers reported December and full-year auto sales for the US on Thursday, and they were robust. The total for 2018 was 17.3 million new vehicles, slightly beating 2017's tally and marking the fourth straight year that automakers have notched a result above 17 million.
The news was almost immediately followed by a quick round of commentary about how the good times are finally over. Bloomberg's "Don't Be Fooled: The US Auto Sales Party Is Coming to an End" headline was emblematic. Everything from excessive reliance on "fleet" sales to rental-car companies to rising interest rates to the ebbing effects of the Trump tax cut were cited as reasons for the market to slide in 2019.The market could slide in 2019; the question really is, "How much?" If it slips to, say, 16.5 million in annual sales, that would still represent a strong selling environment. In any case, the vehicles that automakers are moving - pickups and SUVs - are selling for historically high prices and posting accordingly wide profit margins.
What's more troubling here is the return of downturn cheerleading, which has manifested every year since 2015 posted a record sales total after the cataclysm of the financial crisis, when the selling rate fell to a dismal 10 million in 2009 and took years to recover.
The same factors have been cited every year - and every year the prediction of a downturn has been, to put it bluntly, completely wrong.
Just keeping predicting a sales collapse - eventually, you'll be right
Even late in 2018, naysayers were arguing that the 17 million mark wouldn't be crossed again, even when it was clear from monthly sales that the historically brisk pace was holding up. Obviously, headwinds can't be ignored. Interest rates are ticking up. But gas prices remain relatively low. Transaction prices have moved north. But the unemployment rate is at its lowest point since the 1960s. And an entirely new carmaker, Tesla, has added hundreds of thousands of new sales to the total.The upshot is that 2019 will likely see sales in the 17 million range - yet again. Sure, that could constrict, dropping the "7" and giving the gloom-and-doomers a chance to at long last seem sort-of-kind-of right. There's also a good chance that the sales leaders - GM, Ford, Toyota - will post consistently negative monthly sales figures relative to 2018, provoking a year's worth of "US car sales are tanking" headlines.
For the purposes of taking a realistic view of the US market, all you need to know is that anything above 15 million in annual sales is good news for everybody, as long as carmakers have the right mix of vehicles and can sell them profitably (and, in truth, they don't even have to make money on everything, as long as they have some big hitters, such as full-size pickups).
If you're running a car company, you could brush off this serial wrongness and get back to doing business, right?
Why car companies can't ignore the negativity
Unfortunately, no. The headlines matter because, despite years of booming sales and juicy profits, share prices of the Detroit Big Three have all been punished, pretty much for the entire unprecedented four-year run of record sales. Ford CEO Mark Fields was ousted. GM CEO Mary Barra faced two activist shareholders. Fiat Chrysler Automobiles killed off its lineup of passenger cars. Ford shares are down an almost comical 40% for the past year.
The contrast between the generally superb execution at most automakers during economically good times and the grouchy refusal to high-five the industry by analysts and experts doesn't bode well for what will happen when sales do actually slip into worrisome territory where automakers begin to see profits flatten or disappear.
The Detroit auto show kicks off in a few weeks and the industry is already going into a defensive crouch. The 2018 US sales total should be cause for celebration, given the overall insanity that the Trump administration has inflicted on the business world. "Somehow, we got through all that nonsense! Americans kept buying cars! Hooray!"
Forgetaboutit! This is what happens when you beat your magnificent workhorse for not plowing enough fields, even though that horse has plowed fields aplenty and plowed them well. At some point, it just lies down and quits. Congratulations! You're finally right. But your horse might never plow so enthusiastically again.Get the latest Ford stock price here.