US New Vehicle Mix Change
By: Pete Kornafel
General Motors announced a significant headcount reduction and closing of several plants on 11/26/18. There are three major factors that led to this.
One is a flat market for new vehicle sales in 2018. Rising interest rates have largely killed the zero-rate financing deals, and have increased payment sizes and lease rates for most vehicle purchases. Absence of major new models also contributes to the flat market. As a result, 2018 US new vehicle sales are up a tiny 0.2%vs. 2017 YTD through October.
Second, there continues to be a significant change in the mix of new vehicle sales. Figure 1 is a chart from the Wall Street Journal article about General Motors announcement in late November 2018.
Figure 1: Mix of new vehicle sales 1988-2018
Over the past 30 years, there has been a complete swap of car and light truck shares of the US market. In 1988 sales were about 70% cars, 30% light trucks. In 2018, the mix is reversed, to about 70% light trucks (including SUVs and vans) and 30% cars. And, as the chart shows, the change in car vs. truck shares has been particularly dramatic in the past 5 years.
Third, General Motors overall US market share has declined pretty steadily for more than 50 years, from just over 50% in the late 1960’s to about 17% in 2017, and 16.5% for the month of September, 2018. Figure 2 shows GM US market share over the last 30 years.
Figure 2: General Motors US market share. Source: Automotive News, November, 2017.
These factors are the root causes for General Motors recent announcement.
Most car and light truck models have all new sheet metal about every 6 years, with minor updates in intermediate years. Assembly plants require modest changes in intermediate years, but major reconfiguration for “new” vehicles. So manufacturers must make multi-year commitments to production capacity as they tool for a new vehicle and plant configurations.
Conversion of an assembly plant to a different vehicle type (from a car to a light truck, for example), is avery major change that might require investment of hundreds of millions of dollars.
So, if you are GM in 2018, the overall market is flat and your market share is declining. It is prohibitively expensive to reconfigure plants for trucks instead of cars, and you already have sufficient truck assembly capacity. The only reasonable action is to just close the car plants and take the write-off.
The implications of the mix change is significant for the aftermarket as well. Year over year demand changes can be significant for both car and light truck replacement parts.
Two personal anecdotes….
Our family business, Hatch Grinding Company, was a very small auto parts distributor in the 1950’s and1960’s. We were never large enough to qualify for consideration as an AC-Delco parts distributor. But, for all those years, my father said Hatch would survive, as “the other half” of the aftermarket was just as big as GM’s share.
And, when I graduated from college in 1967 I got a great job at Ford Motor Company. I became the Light Truck Planner in the Product Planning department. Part of my job was to add features and options that would increase the appeal of light trucks for personal use. At that time,almost 100% of light trucks were sold for commercial use. The addition of bright colors, carpet, fabric seats and door trim panels, and more helped start this process with very low investment. When I proposed a dress up option package that included a clock, my boss reminded our group that the mechanical clocks installed in cars weren’t very reliable at that time. His boss, Philip Caldwell, overrode him and said the clock in his company car was just fine. No one dared mention that Caldwell’s company car was a Lincoln with a Cartier clock, and someone in the executive garage was responsible for washing and cleaning his car every day. I’m sure they adjusted the clock if needed,too. So, I feel I was there at the very beginning of a 50+ year movement toward personal use of light trucks, and it has really changed the mix.