For the auto industry, last year should qualify as the good
old days for a long time to come.
1999 was a year of incredibly strong economic fundamentals
in the US. Begin with the longest economic expansion on record, add low inflation and low
interest rates, throw in consumer confidence at a record high and unemployment at a
30-year low. Then combine stock market-fueled income growth and the “wealth
effect” with the most product- and price-competitive automotive market in history,
and what happened was a bull market in passenger vehicles. US consumers were able not only
to buy more cars, plus more cars per household; they were able to buy more car per car —
and replace it faster.
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1999 Firsts
- North American Light Truck production breaks 8 million
- North American Light Truck output exceeds car production
- GM market share drops below 30%
- Sales of North American-sourced light vehicles breaks 14
million - American luxury brands lose sales dominance
1999 Sales Records
- CY1999 shattered the old light vehicle sales record,
exceeding 1986 light vehicle sales by 900,000 units. - It capped an eight-year run of sales growth interrupted only
once, in 1995. - Its YOY growth rate of 9.1% was the strongest single growth
year in the last fifteen. - Every vehicle manufacturer saw YOY sales grow — in fact,
with the exception of the dead Eagle, the dying Plymouth and the two
trying-to-reinvent-themselves American luxury brands, Cadillac and Lincoln, every brand
had a positive growth year. - Sales of North American-sourced light vehicles topped 14
million units for the first time ever — 2.6 million higher than in 1986.
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By GlobalDataOne factor that contributed mightily tothe
record sales year was the relative affordability of new cars. The automotive vehicle CPI
(for comparably equipped products) actually lagged general consumer inflation, as a new,
expanded flurry of sales incentives made “manufacturer’s suggested retail price”
even more dubious than usual. Vehicle manufacturers had to expand incentives for two
reasons: first, to keep their capacity utilization high; second because all their
competitors were doing it. (Fortunately for their profit statements, their pressure on
suppliers to cut prices kept their own costs down.)
1999 saw an 18% increase in sales incentive
activity compared to 1998, and the AUTOFACTS Sales Incentive Index for the year was a full
60% higher than in 1996. A rough estimate is that the vehicle manufacturers lavished from
$35 to $40 billion in incentives to sell 16.9 million vehicles.
Another factor that kept cars affordable was
leasing. Although financialmishaps caused by residual value mistakes forced vehicle
manufacturers to retreat from their overheated leasing frenzy of years past, leasing is
still a significant factor in the American market: some estimates credit retail leases
with 40% of the total market. Further-more, leasing, in particular
“incentivized” leasing, which offers residual values structured to make monthly
payments affordable on high-end vehicles, has pushed US car buyers permanently upmarket,
and they are buying “more car per car.”
More, Bigger, Cheaper
Despite price increases at the pump, gasoline
prices are at historic lows in real terms, and small size vehicle market share continues
shrinking. It is now down to 20% of the market. The US market, out of step with the rest
of the world, continues to favor large vehicles: of the 16.93 million vehicles sold, 75%
were D-Class or larger.
Trucks Push Cars
Light trucks are about to dominate the
personal-use vehicle market. One major reason is that the US consumer no longer makes a
distinction between passenger cars and SUVs or vans, and won’t — until gasoline becomes
much more expensive or less available. Because of cheap gasoline, light trucks now account
for almost half the light vehicles sold in America. In 1986, its last peak sales year, the
US market bought 6.8 million more passenger cars than light trucks. Last year that gap
dwindled to 450,000 units — in spite of the fact that YOY car sales rebounded 7% for
their first annual increase since 1994. From 1986 to 1999, passenger car sales suffered an
absolute 25% decline, while truck sales surged almost 80%. In 13 years, passenger car
market share has slipped from 70% to slightly more than half the market.
SUVs Ascendant
Light trucks dominate the passenger vehicle
market, and sport utility vehicles are about to dominate the light truck market. In 1986
SUVs had a mere 5% market share. By 1994 they had passed minivans, and last year 3.2
million sport utility vehicles were sold, coming within 50,000 units of pickup truck
sales. SUVs now command 19% of the total light vehicle market. With the new MY2000 SUVs
and SUV-pickup hybrids creating new market segments this year, the sport utility should
nudge pickup trucks out of first place for the first time in light truck history.
Blending Market Segments
Light trucks are not only creating new market
segments; they are beginning to tilt old ones. For the first time, traditional US luxury
brands lost market dominance to foreign brands. Both Mercedes and Lexus out-dueled
Cadillac and Lincoln for the first two spots, because Mercedes sold more M-Classes and
Lexus more LX450s and RX300s than Cadillac sold its Escalades or Lincoln its Navigators.
Whether or not the North Americans return to
first place will depend not on their traditional sedans, which are servicing a
pun-intended mature market, but on how well their new truck crossovers and blenders, like
the Lincoln Blackwood and the Cadillac shortbed do this year.
GM’S 29.9%
Another major development of 1999 was GM’s
failure to reach its target 30% market share for the first time in a normal production
year since 1926. For the last 73 years GM has sold at least 30% of the country’s light
vehicles every year excepting only the war years and 1998, when strikes in Flint shuttered
assembly lines and drained inventories. Last year, however, even counting Isuzu sales and
adding 40,000 Saab sales, GM just missed its target, and captured 29.9% of the market.
Ford, despite the fact that its own share declined slightly (in large part due to the fact
that it lay heavier emphasis on increasing profit than capturing market share), further
closed the sales share gap between itself and GM.
1999 Production Records
- 1999 North American light vehicle production set a new
record — 17,008,513 units. - YOY production increased 9.3% — the strongest one-year
advance since 1994. - Light truck production topped the 8 million-unit market for
the first time, surging to 8.7 million units, a 1.1 million unit YOY increase.
Over Here: Importers Become NAMs
Three major changes differentiate the two
record sales years — 1986 and 1999.
First: in 1986, most light trucks still served
as commercial vehicles — seven of the ten best-selling light trucks were pickups. Now, as
more car-like vans and especially SUVs have taken over, light trucks as passenger vehicles
will soon outsell traditional passenger cars.
Second: In 1986, vans and sport utilities were
establishing them-selves as passenger vehicles. Now, firmly established as the dominant
passenger vehicles, light trucks are searching for more sales through blending and merging
styles into van-wagons and SUV-pickups.
Third: globalization continues to move
production closer to market. Nothing more clearly demonstrates that “Build Where You
Sell” continues to drive North American capacity and production growth than comparing
North American production for the two peak years of 1986 and 1999. Among the best-selling
cars and trucks of 1986, 35% of the Honda Accords sold in the US were imported, as were
55% of Nissan’s pickups and all of the Toyota and Mazda pickups sold in the US that year.
In 1986 North American output was only 11.3
million, with imported vehicles capturing 20% of total light vehicle sales in the US
market. Last year, despite a 22% YOY jump in imported vehicles (mainly German and Korean),
North American-sourced vehicles for the first time accounted for more than 14 million US
sales, an increase of almost a million units YOY and two and a half million units over
1986. The US still imports 20% of its passenger cars, but since only 8% of the light
trucks sold are imported, the total import share last year dropped to 14%.
Record sales and build-where-you-sell combined
to set new North American production records in 1999. Total NA production was up to 9.3%
YOY to 17,008,513 units, an all-time record and the strongest one-year advance since 1994.
Cars, as usual, trailed trucks in growth (3.5% vs. 15.3%) and — for the first time — in
volume.
