US car industry sales explode as foreign brands up market share

Detroit

CARMAKERS have enjoyed an unequalled run of success in the United States because of pent-up consumer demand, cheap petrol prices and low interest rates. But despite record sales, manufacturers must continue updating their vehicles and improving technology to keep the good times rolling.

As the car industry tallies its final numbers for 2015, it appears certain that annual sales in the United States will eclipse the previous record of 17.4 million set in 2000. Yet while the industry basks in its accomplishment of returning to sales levels not seen since before the most recent recession, the market looks far different today from what it was 15 years ago.

Then, the three Detroit giants - General Motors, Ford Motor and the German-American carmaker DaimlerChrysler - accounted for nearly 66 per cent of total sales, according to the research firm Autodata.

That dominance has slipped considerably. While overall sales cannot be calculated until December totals are released next week, the Detroit companies, through November, controlled just 45 per cent of the market.

And as Detroit's muscle has weakened, foreign brands have surged. The big three Japanese carmakers - Toyota, Honda and Nissan - have all gained significant market share. New competitors like the Korean companies Hyundai and Kia are making solid gains. Even smaller, niche brands like Subaru and BMW are steadily growing.

Industry analysts said the significant evolution of the market had benefited consumers, who now have a broader array of choices from a bigger variety of manufacturers.

"It's a vastly different landscape today, almost night and day from 2000, when Detroit's Big Three was dominant in most segments," said Jack Nerad, a senior analyst with the car-research service Kelley Blue Book.

A big part of the change can be attributed to the drastic downsizing of the US companies because of financial pressures that prompted them to cut back on US production, employment and model lineups.

GM and Chrysler tumbled into bankruptcy in 2009 and needed government bailouts to survive. In Chrysler's case, the last recession forced the Obama administration to engineer its merger with Italian carmaker Fiat. And Ford, while it avoided Chapter 11, had to pare down its product portfolio and shutter factories to stay in business.

Since the last record year in 2000, the Detroit companies have shed brands that were losing money and whatever cachet they had in the marketplace. The roster of defunct brands is extensive, and includes once-popular nameplates such as Oldsmobile, Pontiac, Saturn, Hummer, Mercury and Plymouth.

Ford, for example, had to sell off some its most prestigious foreign brands, including Volvo, Jaguar and Land Rover, to stay afloat financially. But rather than disappear completely, the brands have enjoyed unlikely revivals under new ownership.

"The industry is less US-centric than it was 15 years ago," Mr Nerad said. "But the amazing thing is that struggling brands like Jaguar and Land Rover are now thriving under the corporate umbrellas of new players like Tata Motors of India."

Meanwhile, GM and Ford have diversified geographically and now count China as a prime growth market. At the same time, their leaner US operations have become solidly profitable because of steadily improving consumer demand.

Still, the US car companies remain reliant on large vehicles, particularly pickup trucks, to deliver big profits. Ford's earnings, for example, slipped until the company was able to achieve full production of its revamped, aluminium-body F-series pickups.

And although overall industry sales soared when petrol prices dipped as low as US$2 a gallon (3.8 litres), carmakers are feverishly developing lower-mileage vehicles - particularly new hybrid and electric models - in anticipation of higher fuel costs and more stringent government regulations.

The composition of the vehicles in US showrooms has also changed. Where once midsized sedans were the biggest-selling segment, those traditional cars have been replaced by the raft of so-called crossover models that marry the fuel-economy and size of a passenger car with the interior space and utility of an SUV.

The research firm Experian Automotive calculates that the crossovers account for nearly 24 per cent of the entire US market - more than double what the segment was responsible for a decade ago.

"The crossover utility segment provides consumers with a nice balance between utilitarian need and fuel economy," said Brad Smith, an Experian analyst.

Compact crossovers like the Honda CR-V, the Ford Escape and the Toyota RAV4 have leapfrogged the older, bigger SUVs to become top sellers in the entire SUV segment.

"It's amazing how the segment has soared," said Jeff Conrad, a senior executive at Honda's American division. "Nobody expected it to grow like this, but we sure don't see any clouds on the horizon."

Mr Nerad said the crossover segment had benefited from becoming homogeneous, so consumers have a wide array of choices that all offer good mileage, carlike ride and handling, and the latest in technology like navigation systems and Internet connectivity.

Overall, the car companies are downsizing many of their models as part of a larger effort to meet new fuel-economy regulations that are coming down the road. Federal rules require that all companies have fleetwide vehicle averages of 54.5 mpg by the year 2025.

Early in 2015, the rush of new-vehicle sales began early because of pent-up demand, gained momentum from low gas prices, and accelerated amid a flurry of holiday discounts and incentives.

The roaring vehicle sales may not last long, though. Mr Nerad notes that US sales have been growing incrementally for the past seven years and says it is unlikely the trend can continue unabated.

He said that an expected series of interest rate increases from the Federal Reserve could chill the trend of cheap leases that carmakers have partly relied on to lift sales. Also, the demand curve could flatten out as consumers pull back from the red-hot pace of replacing older models.

Still, car executives cannot help but revel in the strong finish to sales in 2015. "If you're not having fun in the car business now, then it's time to get out," said Bob Carter, an executive in Toyota's US operations. "It's never been better." NYT