Flickr, CC / Hugo90
- A shift to used-vehicle sales in the US is the latest data point that suggests “peak car” may have already happened in the US.
- Shareholder returns for GM and Ford have been weak as a slew of concerns continue to build around the legacy automakers.
- Watch GM and Ford trade live.
Debt-strapped millennials. Ride-hailing apps. Self-driving technology. The list continues to grow as evidence of “peak car” mounts.
Now it’s time to add a shift to used-car sales to the list, according to a recent report from CFRA Research. Rising prices for new vehicles over the past few years have accelerated the change in consumer behavior.
The trend is particularly pronounced among the highest-quality borrowers, whose take-up rates for used-car financing rose from a year ago, according to the report. The percentage of “prime” credit consumers financing used cars hit a record high of 62% in the first quarter of 2019.
“In our view, the fact that the most qualified consumers are increasingly gravitating toward used vehicles is a potential red flag for automakers who continue to push the limits of consumer affordability,” Garrett Nelson, the author of the report, wrote.
Fears that the US auto market has already seen “peak-car” sales have been a growing source of worry for the industry. New-car sales at General Motors fell for the third year in a row in 2018 — to 2.95 million vehicles, a drop of nearly 50,000 from 2017. Ford sales have also declined over the past three years, coming in at 2.48 million in 2018, down 9,000 from the previous year.
And that’s not all. Sales of ultra-luxury cars have been hit particularly hard as demand for Aston Martin, Lamborghini, and Rolls-Royce vehicles has fallen sharply, according to USA Today, which cited the data-analytics firm Thinknum.
“In our view, the peak in auto sales is clear,” Bank of America’s Michelle Meyer and Anna Zhou said in a client meeting. Other analysts support that view.
“U.S. light vehicle sales are currently on track to come in just below 17 million units in 2019, which would mark the first time since 2014 that new vehicle sales have come in below 17 million,” the MarketScope report said.
The rise of electric vehicles presents a looming threat to legacy automakers, forcing them to invest huge amounts of capital just to keep pace. Millennials have also held off on major purchases, such as homes and cars, because of constraints from the growth of student debt.
In addition, the rise of the ride-hailing giants Uber and Lyft has caused consumers to question their need for personally owned vehicles. And advances in self-driving technology, which some analysts say are only years away, may further accelerate these trends.
Concerns about the rapidly evolving industry have dented the returns of the leading US automakers. GM shares are flat compared with five years ago, while Ford is down more than 40%. In addition, more than 38,000 jobs have been shed in the US through 2019 alone.
“The industry is right now staring down the barrel of what we think is going to be a significant downturn,” Bank of America’s John Murphy said at a conference last week.
