Five cautionary lessons from July's U.S. auto sales.

When you stand on top of a mountain, there’s nowhere to go but down.

That might be the lesson coming out of July’s auto sales figures. Even if the drooping sales only means there’s a plateau that would also suggest things aren’t going to get better right away. Of course, as a realist, I’ve always been annoyed with people who draw diagonal lines up and project that the line will never stop going up. It always does. It appears that July marked the peak of car and truck sales in 2016.

So here are the five cautionary lessons I learned in July sales.

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The real success story of the entire U.S. economy has been the auto industry that has defied experts and continued to grow in a mostly organic way.

The Real Incentive To Avoid Incentives

According to Auto Data Corp., sales in July remain up 1.3 percent for the year and climbed a paltry 0.7 percent for July, compared to July 2015. Detroit took the biggest lumps, seeing flat or low sales gains with General Motors watching sales drop 1.9 percent, Ford sales falling 3 percent, and Chrysler having sales increase 1.8 percent.

The real danger for all three carmakers, as well as others, is if they begin the race to the bottom by trying to artificially push sales through larger incentives during the second half of the year. Huge incentives and big fleet sales – one of the likely reasons Chrysler sales went up – will provide short-term satisfaction but long-term pain. It lowers the resale value of vehicles and hampers profits.

It also creates a snowball effect that forces other carmakers to match those offers and cut into their own profits. As recent history has shown, it’s not a good idea.

The real success story of the entire U.S. economy has been the auto industry that has defied experts and continued to grow in a mostly organic way. That slow growth over the past five years has let carmakers adjust, add jobs, reap huge profits, and reinvest that money into their respective businesses. If a slight plateau in sales causes anyone to jump off the cliff, unfortunately, many more could follow.

Burgess column August 5

 

The biggest improvement in the Honda lineup is the Ridgeline.

The Joke About Honda

There is a joke within the auto industry that when sales are up 10 percent, Honda sales will be up 3 percent and when the industry sales are down 10 percent, Honda sales will be up 3 percent.

There’s some truth to that. July sales overall were up 0.7 percent in July but Honda sales were up 4.4 percent. The strength of that growth was in three vehicles: The Honda CR-V (the fourth best-selling vehicle in America with 36,017 units sold, up 13.3 percent); the Honda Civic (the seventh best-selling vehicle in America at 32,952 units, up 5.8 percent); and the Honda Accord (the eight best-selling vehicle in America at 31,946 units, down 7.4 percent).

All told, three vehicles account for 73 percent of all Honda brand sales in July. Of course, the biggest improvement by percentage in the Honda lineup is the Ridgeline, of which the company sold 3,518 units. Last July, Honda sold six as it prepared to retool and launch the next-generation truck. The difference between these two pickups is stunning. Whereas the previous model filled a small niche, the new model is much more mainstream and sales could settle around 5,000 units a month for a long time to come, putting it a distant fourth behind the perennial front-running Tacoma, which topped 111,000 units through July, the Chevy Colorado, which has seen a 23.9 percent increase this year, selling 60,422 units so far, and the Nissan Frontier, which has had sales jump 34 percent this year for a total volume of 52,255 units.

And that’s no joke.

Burgess column August 5

 

Currently, Toyota has the third largest volume in America, selling 1.4 million cars this year, 70,000 units ahead of Chrysler.

The New Big Four

Forever, Detroit’s carmakers were known as the Big Three. But then they started to give up market share to import brands and that big moniker didn’t seem to fit. So they were relabeled as The Detroit Three. But really, there’s another brand that seems to be mirroring Detroit. That is Toyota.

Currently, it has the third largest volume in America, selling 1.4 million cars this year, 70,000 units ahead of Chrysler. The vast majority of vehicles it makes are built in North America, and its luxury brand, Lexus, never seems to offer the right mix of luxury and sportiness despite its many efforts to do just that. (The RC is a phenomenal car, but only sold 977 units in July, down 21 percent.)

In the past, the American brands were criticized for their lack of ingenuity or ability to build cars people wanted. For the most part, Detroit has dismissed that notion and created some excellent cars – and trucks. But when was the last time Toyota introduced something both groundbreaking and inspiring? The Prius is probably the most exciting – at least in a metaphysical sort of way – that moved the needle for the brand. It was by far the most important vehicle introduced in the past 20 years. But America was born with a short memory and it appears many have just lost that Toyota feeling.

The one big difference between Toyota and Detroit in the past was that Toyota relied on cars for its volume. Through July 2015, Toyota’s car/truck sales mix was 52 percent cars and 48 percent trucks. This year, the mix has reversed: 48 percent cars and 52 percent trucks. That number isn’t nearly as high as the traditional American brands, but it shows a big evolution for Toyota.

Sales for the year at Toyota are down 2.5 percent for the year and there are no signs there will be big gains in the future. It has started down that dangerous fleet road to spur numbers and even saw its small-truck sales fall 2.7 percent in July. It used to own that segment, now it’s losing market share even as the segment grows. That’s never a good sign.

Welcome to the family.

Burgess column August 5

 

Who knows what the final price will be for VW, but it appears to have moved through the worst of the problems.

Volkswagen Will Not Go Out Of Business

The demise of Volkswagen has been sharply overstated. The brand will still take some lumps for tricking the world that its clean diesels were cleaner than they really were. But VW has settled many of the cases it faced and is in the process of making restitution to governments and its car buying audience at the same time. Who knows what the final price will be for VW, but it appears to have moved through the worst of the problems.

The U.S. customer seems to be equally as forgiving. Sales at VW are down 7.7 percent for the year, which is worse than the industry average but certainly not a death knell. This is the perfect time for VW to see the overall market stall just a little allowing the brand to lower expectations and see smaller drops in sales.

In one way, it may also help. The Jetta, which has been hurt by the scandal and is the top selling VW in America, has seen sales fall 8.3 percent. Golf sales have fallen 15.6 percent, but its volume is less than half that of the Jetta.

VW will abide. It has, in fact, survived worse.

Burgess column August 5

 

Ram, which used to be part of Dodge, outsold Dodge by almost 25 percent.

Numerical Insight

Here are some of the stranger numbers I found in the July 2016 sales figures.

Ram, which used to be part of Dodge, outsold Dodge by almost 25 percent: 35,520 Dodge vehicles vs. 44,069 Ram pickups.

Buick has sold exactly 62 more vehicles this year compared to last year.

A total of 0.1 percent of the people who buy a Nissan Pathfinder choose the hybrid version. BMW customers think even less of hybrids. BMW sold 23,115 5 Series sedans this year in America. Just 15 have been hybrids, which represents 0.06 percent.

Sixty-nine people are living life a little larger after buying their Kia K900, though not as large as the one person who bought an Infiniti Q40 sedan. There may also be 11 people looking out at their driveway right and thinking, “yeah, that Honda Crosstour I bought in July looks sweet.”

Numbers may not lie, but that will never mean we can’t lie to ourselves.

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