Are Automakers Suggesting It Is About To Get Real?

Ford Motor (F) issued a stark warning last week when reporting second quarter earnings. On its conference call, CFO Bob Shanks used the word “plateau” in relation to the possible trajectory of Ford sales later in the year. The company remained committed to its profit targets despite what it says are now increased risks that extend beyond Ford-specific conditions.

Ford’s results reflected some Ford-specific problems, like the Super Duty launch. But its warnings about U.S. sales could dampen the whole industry. Ford’s Chief Financial Officer Bob Shanks said after an unprecedented growth streak, the U.S. market is starting to plateau. Pretax results in the region fell 5 percent to $2.7 billion.

Indeed, the word “plateau” apparently struck a chord with auto commentary. It has been used repeatedly this week as sales numbers for the month of July once again underwhelm. GM’s total July sales were down nearly 2%; Toyota (TM) -1.4%; Ford -2.8%. Offsetting the new Big 3 were Honda (HMC), Hyundai (HYMLF), and Mercedes so that overall total unit sales were slightly positive year-over-year in July (+0.2%).

It isn’t just the one month, however, as this extends a trend that has been building all year. As the Wall Street Journal notes:

Sales for the top three auto makers selling in the U.S. slipped in July as the strong growth rate that defined the past six years slows to a crawl, another indication the industry is entering its first sustained plateau since the decade leading to the financial crisis.

For the seven months year-to-date through and including the tepid pace in July, total auto units sold in 2016 were only 0.8% more than the first seven months of 2015. This is not just a problem for automakers, which suggests why the more benign-sounding “plateau” has been suddenly attached in widespread fashion.

The auto industry’s recovery has been a bright spot for the U.S. economy, with high factory utilization spurring new jobs, investment in American facilities and wage growth for Detroit’s auto workers. Car buyers spent $49 billion on light vehicles in July, according to TrueCar Inc., up 1% amid longer loan terms and a boom in subsidized auto leases—trends that keep monthly payments on par with a decade ago even as sticker prices go up.

Overall retail sales are a trouble spot as purchases made by individual customers in showrooms have stalled this year, down slightly for the first seven months, according to J.D. Power. Auto makers are betting sales to government agencies, rental-car firms and commercial fleets will continue to grow.

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