There’s no denying that vehicle sales in the US are red-hot. That’s hardly news, though; annual sales have topped the 17 million-unit level for three years running. In spite of the so-so growth the economy has cranked out in the past seven years, changing overall preferences and a millennial generation that isn’t supposed to be as interested in vehicle ownership, auto sales rocketed back from the recession’s chasm, and were arguably the first industry to truly recover. What drove this stunning growth, and what does the near-term future look like?
Compared with previous growth phases, this one is quite impressive. The speed of recovery is more like the post-1982 period, although back then, today’s levels were never matched. The previous growth cycle began in 1992, and was slower to get going. Back then, today’s sales levels were only reached after eight years of expansion, and the starting point was much higher than in this phase. This time, from the recession’s deep trench, it took only six years for sales to cross the 17-million-unit level.
Top selling vehicles in the US
What are the hot-spots, by vehicle type? Light trucks are leading the charge, boasting seven years of uninterrupted expansion. However, vans and SUVs, the darlings of the past, are no longer the sales powerhouses. That honour goes both to pickup truck sales, which, while growing sharply, still fall shy of previous peak levels, and crossover utility vehicles (CUVs) which have surged from almost nothing in 2000 to 6 million units in 2017. It hasn’t been rosy for all segments of sales, though. Car sales did rise, but since 2014 have sunk back by a total of 21 per cent.
The market as a whole may have come roaring back, but the Detroit-3 aren’t out in front. Things had already soured for the D-3 when recession took them to the brink. Since then, in both cars and light trucks, they have been losing market share. While they used to own the light truck space, D-3 shares have come down from 65 per cent in 2007 to 54 per cent last year. For cars, the news is even worse. At just 40 per cent in 2000, the D-3 now grab just 26 per cent of the total market.
At the same time, the share of US vehicle sales that are produced in North America has see-sawed. Back in the mid-1980s, the domestically-produced share of sales was about three-quarters of the total. It soared to 89 per cent in the mid-1990s, but since then has retreated right back to the 75 per cent level, and is in a bit of a holding pattern there. And then the allocation within North America has shifted, with Mexico’s production gains concerning many in America.
US auto industry back to peak levels in 2016 and 2017
Even so, put another way, production inside the US seems as red-hot as sales. The Federal Reserve Board’s capacity utilization numbers peg the auto industry at peak levels in 2016 and 2017. You really have to go back to the late 1970s to find a number that’s significantly higher than current utilization. Recent investment announcements will no doubt alleviate some of that pressure, but high sales levels will keep things tight.
A further bright signal is truck sales. Medium-duty vehicles are on a multi-year surge, and could test previous peak levels. This speaks to rising business investment, as these are typically used for more industrial purposes. Even more inspiring is the recent jump in heavy truck sales, a noted bellwether of wider growth.
Canada’s auto industry vulnerable in NAFTA renegotiations
Bringing the story together, it is evident that while sales are scorching, there are concerns about how that is cascading into activity in the local market. The sector is occupying a prominent spot in the current NAFTA renegotiations, with the US proposing aggressive US and North American content requirements. Canada’s industry has obviously benefited from the rebound in US sales, and has attracted recent investments that bode well for the future. Even so, our part of the industry is vulnerable to changes that may come with a redesigned NAFTA, or worse still with no NAFTA at all. Among all industries, the auto sector is the one that we judge most vulnerable to possible changes.
The bottom line?
Vehicle sales in the US are about as hot as they ever get, and the heat is expected to persist. In general, the industry is relieved, rejoicing and very busy. Break down the numbers a few ways, and the story is not quite as rosy. This has heated up the politics around the industry, bringing uncertainty to its future, and hesitation to investment plans – at a moment when new spending is badly needed, on multiple fronts.