The North American International Auto Show in Detroit is usually a showcase for the major car producers’ new offerings, at which the scale and expense of their stands is taken as an indication of their confidence in the coming year.
This show is no different, with not just the big three US carmakers (GM, Ford and Chrysler) very much in evidence, but also a strong showing from Japanese, European and Asian carmakers. Curiously, even though hybrid and plug-in electric vehicles make up such a small fraction of the market, carmakers still give them undue prominence at such shows, even though automakers’ profits — indeed, their very survival — is based on mainstream cars such as the Ford Fusion and the Toyota Camry.
Bright Spots on the Road
Still, according to the FT, automakers have a lot to look forward to in the US market in 2012, in terms of both mainstream sales and light trucks and SUVs. After the 2008 crash that drove some major domestics to bankruptcy, three years of pent-up sales began to gradually force buyers back to the market in 2010. In 2011, America’s market for light vehicles, including cars and commercial vehicles, grew at about 10 percent and is expected to rise by a further 8.8 percent in 2012 to 13.8 million units.
Meanwhile, much is made of how emerging auto market demand is cooling as growth slows in China and Brazil. But car sales growth is continuing, from an already large base. China is estimated to have sold 18.5 million light vehicles in 2011, although this is only 2.5 percent up from 2010 – far lower growth in both percentage terms and total additional sales than is the case in the US (remember, a decade ago the Chinese market was a tenth of the size of the US).
Should we be reading this as a sign that credit tightening in China has been overdone and growth is slowing sharply in the economy? In fact, when the removal of tax incentives introduced in 2008 is taken into account, it is amazing sales have increased at all in 2011.
Sales rocketed 46 percent in 2009 and 32 percent in 2010, dragging new buyers into the market who may otherwise have stayed with motorcycles or even bicycles for years. The fact that underlying car sales, not including small commercial vehicles, still rose 5.2 percent last year figures suggest Chinese buyers are in rude health and confident about their economic situation.
Should we assume the same for the US sales figures? Are buyers pulling out wads of dollars they have stashed under their mattresses over recent years, or stopped paying down debt, or worse — are we seeing the first signs of Americans leveraging their home equity again â€“ those that have any? There have certainly been no government-led incentives, so are carmakers discounting heavily to promote sales?
Well, according to some analysis in this article, the first positive is that sales have been achieved without carmakers engaging in ruinous incentives. But interestingly, non-revolving debt, which includes auto loans, had the second-biggest annual increase in November since 2005, while the savings rate in the US fell to the lowest level since the recession began.
This indicates that record-low yields are finally feeding through to the economy, but it probably also reflects lower lending standards. Lenders are loosening the tap on car loans relative to mortgages, say, which were once considered safer. However, according to auto lender Ally Financial, consumers are strangely far less likely to skip auto payments than house payments: delinquencies peaked at only 3.5 percent in late 2009 and fell to below 1.5 percent by early 2011, where they have remained so far.
In both China and the US, rising car sales indicate an underlying confidence in the year ahead. In the US, the market still has pent-up demand waiting to be satisfied as the economy continues to improve. In China, many of the next five years of sales were probably pulled forward by the now-closed incentive schemes, so growth in both markets, while playing to different dynamics, are positive bellwethers for consumers’ view of the year ahead.