This week, Ford confirmed it’s largely abandoning the traditional car business by — eventually — no longer offering traditional sedans. Within a couple of years, all that will be left are the iconic Mustang and a single version of the Focus that looks more like a crossover than a car.
Like Fiat Chrysler two years ago, Ford determined there’s little future in traditional cars in terms of sales volume — and even more so in profits.
Let’s look at the cold, hard facts.
Car market share has been hovering around 33 percent so far in 2018. Sharp declines continue in car sales, falling 9 percent in March compared with the year before. The drops have been in all major car segments.
In contrast, light truck sales outperformed car sales again in March, up 16 percent year-over-year. On a year-to-date basis, car sales are down 11 percent, while light truck sales are up 10 percent.
But it’s not all doom and gloom for brands with flagship cars. Sales of certain models are performing respectably this year:
Toyota Camry: up 9 percent Q1 2018 versus Q1 2017
Honda Civic: up 1 percent Q1 2018 versus Q1 2017
Nissan Sentra: up 17 percent Q1 2018 versus Q1 2017
Understandably, automakers want to stop the bleeding when it comes to money-losing cars. But as car sales plummet, the industry needs to step back and realize one in three shoppers is still buying a coupe or sedan.
Automakers are obviously meeting in boardrooms to discuss how to eliminate car production and focus instead on SUVs, CUVs and pickups. What happens if all car production ceases? Sure, automakers dream of the profits generated by sales of trucks, but the reality is demand for cars will continue to exist.
Two driving forces behind passenger car sales come from consumer affordability and consumer preference.
Industry Intelligence Manager for Cox Automotive Zohaib Rahim says, “There will always be a subset of the population that prefers cars. The styling, size and drive characteristics draw people to cars over utilities and trucks. Enthusiasts like the design of a hatchback, adventurers enjoy the practicality of a wagon, and a retired couple may prefer the comfort of a convertible coupe on the way to the beach.”
More importantly, affordability drives car sales. In an environment in which average new-vehicle transaction prices and interest rates are moving up, a budget-conscious shopper might be constrained to buying a small car versus an SUV. Look at the price difference between a Nissan Sentra and a Nissan Rouge. Or the Honda Civic and Honda HR-V. If the monthly payment range is tight, the option to jump into a SUV means having to take out longer and longer loan terms — or take the car instead. Millennials, who find themselves in the used vehicle market due to affordability constraints, could opt for a new car if the monthly payment makes sense, but probably not a new utility.
So where do we go from here? What happens next?
Domestic automakers’ abandonment of traditional cars like coupes, sedans and wagons is the dream for Toyota, Honda, and Nissan. If or when car sales finally plateau and certain automakers have jumped ship on car production, Toyota, Honda, Nissan and possibly the South Korean automakers could experience market share increases, since they’d be selling in a less competitive car market. Having to compete against just a few other brands for its share of 30 percent of the U.S. vehicle market is more attractive to Toyota than having to compete with a half-dozen or more brands.
We could see a market reminiscent of the 1970s and 1980s, when domestic automakers couldn’t successfully make midsize and small cars to compete with cars like the Toyota Camry, Honda Accord and Nissan Altima, allowing those cars to dominate the car market. Now, those same cars could become even more important to their respective brands, attracting consumers abandoned by the domestics and providing a foothold for consumers to move up in the import brands.
This could be a déjà vu moment.