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| Low Rates, Cheap Gas and Deeper Debt Sustain Car Buying Boom | |
| (32 minutes later) | |
| The auto industry has been on a roll for a decade, and its resurgence shows few signs of coming to a halt — at least for now. | The auto industry has been on a roll for a decade, and its resurgence shows few signs of coming to a halt — at least for now. |
| Strong employment, low interest rates and robust consumer confidence combined last year to extend a record run of auto sales. | Strong employment, low interest rates and robust consumer confidence combined last year to extend a record run of auto sales. |
| Americans are also continuing to buy ever bigger cars, at prices escalating faster than the overall inflation rate. And they are taking on more debt to do so. | Americans are also continuing to buy ever bigger cars, at prices escalating faster than the overall inflation rate. And they are taking on more debt to do so. |
| Nationwide, automakers sold more than 17 million new cars and light trucks in 2019, the market-research firm Edmunds estimated Friday. It was the fifth straight year of sales exceeding that figure, a distinction never achieved before. | Nationwide, automakers sold more than 17 million new cars and light trucks in 2019, the market-research firm Edmunds estimated Friday. It was the fifth straight year of sales exceeding that figure, a distinction never achieved before. |
| Some automakers, notably Ford, have yet to report their final figures for the year. When they do, the total is likely to be slightly below the 17.3 million vehicles sold in 2018. | Some automakers, notably Ford, have yet to report their final figures for the year. When they do, the total is likely to be slightly below the 17.3 million vehicles sold in 2018. |
| “We are past the peak,” said Mark Wakefield, a managing director at AlixPartners, a consulting firm with a large automotive practice. “But we are better off than we thought we would be going into 2019,” he added, largely because of interest rate cuts by the Federal Reserve. | “We are past the peak,” said Mark Wakefield, a managing director at AlixPartners, a consulting firm with a large automotive practice. “But we are better off than we thought we would be going into 2019,” he added, largely because of interest rate cuts by the Federal Reserve. |
| Low fuel prices have also helped. The average retail price of regular gasoline was at $2.57 this week and has not been above $3 in more than five years, according to the Energy Information Administration. | Low fuel prices have also helped. The average retail price of regular gasoline was at $2.57 this week and has not been above $3 in more than five years, according to the Energy Information Administration. |
| That helps explain why consumers continued gravitating toward pickup trucks, sport utility vehicles and other roomy models, offsetting another steep fall in sales of sedans and compacts. Nearly two out of every three new models purchased last year were classified as light trucks — which includes minivans and even some small, S.U.V.-shaped cars. | That helps explain why consumers continued gravitating toward pickup trucks, sport utility vehicles and other roomy models, offsetting another steep fall in sales of sedans and compacts. Nearly two out of every three new models purchased last year were classified as light trucks — which includes minivans and even some small, S.U.V.-shaped cars. |
| At the same time, the average new vehicle sold for $37,183, according to Edmunds. That represents an increase of 30 percent since 2009, a period in which overall consumer prices rose 20 percent. Much of the rise stems from increasing sales of trucks and larger vehicles, which sell for higher prices than cars. Many new cars also include elaborate technology like large touch screens, radar and other advanced safety systems, adding to the cost. | At the same time, the average new vehicle sold for $37,183, according to Edmunds. That represents an increase of 30 percent since 2009, a period in which overall consumer prices rose 20 percent. Much of the rise stems from increasing sales of trucks and larger vehicles, which sell for higher prices than cars. Many new cars also include elaborate technology like large touch screens, radar and other advanced safety systems, adding to the cost. |
| The shift to trucks, which generate more profit than cars, has powered General Motors and Fiat Chrysler in barely a decade from bankruptcy to near-record financial results. Ford’s profit has been less stellar as it pushes to reorganize. Rivals that have traditionally been stronger in compacts and sedans — like Toyota and Honda — have also had bottom-line difficulties in North America, although they continue to make money. | The shift to trucks, which generate more profit than cars, has powered General Motors and Fiat Chrysler in barely a decade from bankruptcy to near-record financial results. Ford’s profit has been less stellar as it pushes to reorganize. Rivals that have traditionally been stronger in compacts and sedans — like Toyota and Honda — have also had bottom-line difficulties in North America, although they continue to make money. |
| Fiat Chrysler cashed in last year on the demand for pickups, with sales of its Ram jumping 18 percent to more than 633,000. That made it the nation’s second-best selling vehicle after the Ford F-150 pickup, surpassing the Chevrolet Silverado from General Motors. (G.M.’s overall sales of full-size pickups still outpace the Ram, thanks to the Sierra sold by its GMC brand.) | Fiat Chrysler cashed in last year on the demand for pickups, with sales of its Ram jumping 18 percent to more than 633,000. That made it the nation’s second-best selling vehicle after the Ford F-150 pickup, surpassing the Chevrolet Silverado from General Motors. (G.M.’s overall sales of full-size pickups still outpace the Ram, thanks to the Sierra sold by its GMC brand.) |
| Another winner was Tesla. Though electric cars made up less than 3 percent of overall car sales, Tesla dominated the category, and reported Friday that its worldwide deliveries were up 50 percent for the year. It did not break out sales in the United States. | Another winner was Tesla. Though electric cars made up less than 3 percent of overall car sales, Tesla dominated the category, and reported Friday that its worldwide deliveries were up 50 percent for the year. It did not break out sales in the United States. |
| Among the few companies to suffer significant declines were Mazda and Nissan, both of which have been slow to expand the range of their S.U.V.s. Mazda’s 2019 sales in the United States fell 7 percent, and Nissan’s were down 10 percent. | Among the few companies to suffer significant declines were Mazda and Nissan, both of which have been slow to expand the range of their S.U.V.s. Mazda’s 2019 sales in the United States fell 7 percent, and Nissan’s were down 10 percent. |
| Auto executives remain confident about the industry outlook, yet mindful that a slump will come at some point. | Auto executives remain confident about the industry outlook, yet mindful that a slump will come at some point. |
| “I feel positive about the market in 2020,” said Mike Manley, chief executive of Fiat Chrysler. “It’s very difficult to tell exactly because it’s an election year and you never know what’s going to happen.” | “I feel positive about the market in 2020,” said Mike Manley, chief executive of Fiat Chrysler. “It’s very difficult to tell exactly because it’s an election year and you never know what’s going to happen.” |
| Mr. Manley said he did not expect a huge downturn like the one that hit the industry in 2008 and 2009. “But the reality is, the market is cyclical,” he said. “At some stage, the industry is going to drop off on its own.” | Mr. Manley said he did not expect a huge downturn like the one that hit the industry in 2008 and 2009. “But the reality is, the market is cyclical,” he said. “At some stage, the industry is going to drop off on its own.” |
| Most analysts see auto sales slipping only slightly in 2020, to a range of roughly 16.5 million to 16.9 million vehicles. “With the overall strength in the economy, with full employment, you’ve got consumer confidence at an all-time high,” said Jack Hollis, group vice president and general manager of Toyota in North America. | Most analysts see auto sales slipping only slightly in 2020, to a range of roughly 16.5 million to 16.9 million vehicles. “With the overall strength in the economy, with full employment, you’ve got consumer confidence at an all-time high,” said Jack Hollis, group vice president and general manager of Toyota in North America. |
| In addition, the three big American automakers bought four years of labor peace in the fall with new union contracts, though at the cost of a 40-day strike against General Motors. | In addition, the three big American automakers bought four years of labor peace in the fall with new union contracts, though at the cost of a 40-day strike against General Motors. |
| Nevertheless, the industry still faces some risks. The Trump administration’s trade war with China remains unresolved. And the rising tensions between the United States and Iran are a reminder of the potential volatility of oil prices. | Nevertheless, the industry still faces some risks. The Trump administration’s trade war with China remains unresolved. And the rising tensions between the United States and Iran are a reminder of the potential volatility of oil prices. |
| The new trade deal by the United States, Mexico and Canada is likely to increase domestic production and auto employment slightly and cause automakers to think hard before adding new plants in Mexico. “The question is whether it raises prices, and if that hits demand,” Mr. Wakefield said. | The new trade deal by the United States, Mexico and Canada is likely to increase domestic production and auto employment slightly and cause automakers to think hard before adding new plants in Mexico. “The question is whether it raises prices, and if that hits demand,” Mr. Wakefield said. |
| One worry is whether the steady rise in prices is sustainable, along with the increasing debt that owners have taken on to buy those more expensive cars. | One worry is whether the steady rise in prices is sustainable, along with the increasing debt that owners have taken on to buy those more expensive cars. |
| More than one-third of Americans now have auto loans, up from 20 percent in 1999, according to the Federal Reserve Bank of New York. The share of consumer debt going to auto loans climbed to 9.4 percent in the third quarter of 2019, compared with 6 percent in the same period 10 years ago. | More than one-third of Americans now have auto loans, up from 20 percent in 1999, according to the Federal Reserve Bank of New York. The share of consumer debt going to auto loans climbed to 9.4 percent in the third quarter of 2019, compared with 6 percent in the same period 10 years ago. |
| Many consumers are dealing with the higher prices by borrowing over longer terms. Auto loans approved in December had an average term of 69 months, compared with 62 months a decade earlier, Edmunds found. | Many consumers are dealing with the higher prices by borrowing over longer terms. Auto loans approved in December had an average term of 69 months, compared with 62 months a decade earlier, Edmunds found. |
| That has helped keep monthly car payments from climbing as fast as sales prices. Still, those payments for loans generated in December averaged $577, up from $499 in 2014. | That has helped keep monthly car payments from climbing as fast as sales prices. Still, those payments for loans generated in December averaged $577, up from $499 in 2014. |
| “That’s really the number to watch,” Mr. Wakefield of AlixPartners said, and so far the consumer can handle it. | “That’s really the number to watch,” Mr. Wakefield of AlixPartners said, and so far the consumer can handle it. |
| For Mr. Manley’s company, Fiat Chrysler, consumer concerns about affordability have paid off. Last year, it introduced a brawnier Ram pickup available with a large touch screen and other advanced technologies. But Fiat Chrysler has continued making a more basic version, which can sell for $6,000 to $8,000 less than competing models. “We have a truck that is a great value,” Mr. Manley said. | For Mr. Manley’s company, Fiat Chrysler, consumer concerns about affordability have paid off. Last year, it introduced a brawnier Ram pickup available with a large touch screen and other advanced technologies. But Fiat Chrysler has continued making a more basic version, which can sell for $6,000 to $8,000 less than competing models. “We have a truck that is a great value,” Mr. Manley said. |
| Whatever the value, though, the cost is pushing some buyers away from new cars. | Whatever the value, though, the cost is pushing some buyers away from new cars. |
| Last August, when Pete Krupsky went to look to replace his high-mileage Honda Civic, he headed straight to his dealer’s used-car lot. “I didn’t want a new car because I can’t afford the $25,000 or whatever the price is,” said Mr. Krupsky, a hockey play-by-play announcer in Rosewood, Mich. | Last August, when Pete Krupsky went to look to replace his high-mileage Honda Civic, he headed straight to his dealer’s used-car lot. “I didn’t want a new car because I can’t afford the $25,000 or whatever the price is,” said Mr. Krupsky, a hockey play-by-play announcer in Rosewood, Mich. |
| He found a 2017 Honda Accord with 19,000 on its odometer — for $18,000. “It’s the most luxurious car I’ve ever had,” he added. | He found a 2017 Honda Accord with 19,000 on its odometer — for $18,000. “It’s the most luxurious car I’ve ever had,” he added. |
| Susan Beachy contributed research. | Susan Beachy contributed research. |