Full-line automakers are replacing old models with all-new ones at a quicker rate, and the most competitive companies can retain or gain market share as new vehicle sales in the United States grow to a record 20 million in calendar year 2018. That’s the over-the-top rosy forecast from Bank of America Merrill Lynch’s “Car Wars 2016-2019,” which the firm’s research analyst, John Murphy, presented to the Detroit Automotive Press Association on Wednesday.
That 20 million sales number for ’18 might be an “underestimate,” Murphy says. It stands in stark contrast to my more dismal outlook expressed in a May 28 column.
Murphy and I agree on one thing: A lot of new product is coming. He thinks a growing U.S. economy and its effect on the customer base, combined with an aging auto fleet, will absorb it.
“We see the next [sales] trough of 14 [million] to 15 million units coming no earlier than the mid-2020s,” he told the APA.
A day earlier, the U.S. auto industry reported a seasonally adjusted annual rate (SAAR) of 17.7 million sales. The SAAR is a tricky number that can hype a single hot month. To date, full-year auto sales have topped 17 million seven times — in 1999, 2000, 2001, 2002, 2004, 2005, and 2006, with the record of 17,472,378 in 2001 (source: Wards).
There’s no reason to think we won’t top 18 million within the next few years, and the good news for automakers is that much of the growth since the recession-year nadir of 10.6 million has come in the premium and luxury categories. But along with that premium car growth comes off-lease, three-year-old “certified preowned” models coveted more and more by mainstream buyers who otherwise would buy brand-new Chevys, Fords, Toyotas, and Hondas.
The big question is whether the new-model proliferation that Murphy forecasts will push the market in a thriving economy or whether automakers will get caught, again, with too much product chasing too few dollars. Amid the fierce competition, will automakers eat their own profits with rising incentives?
Murphy clearly thinks not, though an industry insider told me after the better-than-expected May sales numbers came out that automakers already are raising incentives just to maintain market share.
Murphy’s single cautionary note is that new products due by the 2019 model year are “overweight” with crossovers globally. But even this is a positive development. “This should drive a positive mix shift in model years 2016-’19,” his report summary says. In other words, all this new product will stimulate the market.
Murphy singles out Honda as the automaker most likely to increase its U.S. market share by 2019, when it will have replaced virtually everything in its entire portfolio (including Acura’s). This doesn’t count major model refreshes, only full redesigns. The Toyota Camry’s 2015 face-lift, for example, does not qualify it as a new product.
Honda’s “mix is skewed toward CUVs and midsize cars due to the launch of the Pilot (MY16), CR-V (MY17), Acura RDX (MY18), Acura MDX (MY19) and Accord (MY18),” and of course, the MY17 Civic, Murphy’s report says. BofA Merrill Lynch expects Honda’s U.S. market share to rise from its current 9.4 percent by 2018.
Murphy also is bullish on General Motors for pulling forward its next all-new Chevrolet Silverado and GMC Sierra for a 2019 model year introduction, “about two years earlier from the normal cadence. The ability to pull forward a product like this by two years is pretty miraculous.”
On the other hand, GM’s cadences have gone askew since the 2009 bankruptcy. Chevrolet’s “five in ’15” launch this year of a new Camaro, Malibu, Volt, Spark, and Cruze essentially straightens out what happened, and didn’t happen, in the last three to five years.
Perhaps the most interesting thing about the report is that it analyzes intelligence from suppliers to forecast new models. To wit, here are the schedules of several new models from major automakers:
* A “Buick Park Avenue sedan” for MY18 — the Avenir, obviously — though there have been some indications the Omega-based rear-drive sedan is on ice because of cost. Murphy also forecasts the Cadillac XT7, based on the new large-midsize CUV platform (MY17 Chevy Traverse/GMC Acadia and MY18 Buick Enclave) for MY19. Cadillac also will have a new CT2 and CT4 sedan and an XT3 small crossover that year.
* Toyota’s “mix is skewed toward sedans, due to the launch of the Prius in MY16 and Camry in MY18. It is also slightly overindexed to trucks due to the launch of the Tacoma (MY16), Sienna (MY17), Tundra (MY19).” Murphy concludes that Toyota is “slightly ahead of the industry average refresh rate, which, combined with a focus on Lexus, bodes well for market share.”
* Ford’s cadence is better than it looks, Murphy says, because its high-volume aluminum F-150 launched before the 2016 “Car Wars” parameter. The report forecasts the new Lincoln Continental and a new Lincoln MKM coupe for MY17. A new Ford Escape, Fiesta, and Focus are due in MY18, along with the Lincoln MKA sedan. A Lincoln Aviator “large lux CUV” is expected in MY19.
* “Nissan appears overindexed to mid/large cars due to the launch of the Maxima (MY16) and Altima (MY18), and overweight on small cars due to the Versa (MY17) and Sentra (MY19). Although these are key product launches, a relative underexposure to new CUV models is a risk.”
Murphy concludes that Nissan is “one of the OEMs most at risk of losing market share” because of its lack of new CUVs from model years 2016-’19. This finding seems to ignore that Nissan has just updated its Rogue and Murano, while its Pathfinder is a year older.
* The report’s forecast of new Fiat Chrysler models obviously was written before reports surfaced that many new Chrysler products are on hold in favor of rebuilding Alfa Romeo. Murphy’s report has the new Chrysler 100 compact and a new Dodge Dart still scheduled for MY17, with the new Jeep Wrangler, Ram 1500, Jeep Grand Cherokee, a new Chrysler Pacifica “large CUV,” and Dodge Horizon “sedan and hatchback,” obviously a B-segment car, coming in MY18. The Jeep Grand Wagoneer, new Chrysler 300 and Dodge Challenger, Ram 2500/3500, and midsize Chrysler CUV are expected in MY19.
Hyundai and Kia have been pushing the industry with aggressive four-year cycles for most of their products, though the report expects the two to “fade” with aging showrooms in model years 2017 to ’19. “Average age creeps above the industry average in MY18-19.”
The upshot of Murphy’s analysis is this: Honda will see an increase in U.S. market share (despite its swearing off most rental fleet business), while Toyota, Ford, GM, and FCA will maintain share. That’s a good thing if BofA’s 20-million-plus sales prediction for CY18 comes true. Nissan, the Europeans, and Hyundai/Kia will lose market share by 2018.
I asked Murphy to predict Wall Street’s reaction to the cost of all this new product. Investment analysts have dinged automakers from Ford Motor Company to Jaguar Land Rover for cutting into net profits with such heavy investments as the aluminum F-150 and the Jaguar XE. Murphy’s not worried, and he notes that new vehicle prices are creeping up across the board. By carefully boosting sticker prices, even low-margin commodity models will remain profitable.
I wish I could be this optimistic; my insider’s warning about a new incentive war gives me a chill that we’re heading back to the bad old days. So it’s up to you, dear reader: What do you think? Are you willing to pay more for an all-new car or CUV even as the industry is adding more choices?