In line with the bearish auto market in China, US auto makers have also declared a weak fiscal year at the close of 2018.
Ford (NYSE: F) stated that sales dropped by 8.8% in December, with demand waning for vehicles like pickup trucks and SUVs. The latter fell by 4.4%. Moreover, Ford's transaction prices rose to $38,400 per car, implying that it is costing the company more to acquire an additional customer and sell more products to existing customers. This is primarily driven by market trends, as consumers are demanding less sedans and more heavy automobiles such as pickup trucks.
GM (NYSE: GM), the No.1 US automaker, also suffered declines, with sales dropping by 2.7% in the last quarter of 2018. Many of its high-margin SUVs were impacted by the decline, including the Chevrolet Suburban. Many of its high-margin SUVs were impacted by the decline, including the Chevrolet Suburban.
Aside from consumer taste shifting towards pickup trucks, there is the electric car phenomenon that has to be factored in to sales predictions. Research has found that "20% of American drivers and 40% of European drivers expect their next car to be electric."
This has threatened the position of legacy automakers like GM and Ford, and placed the spotlight instead on carmakers such as Tesla (NASDAQ: TSLA), that are fully invested in the sector.
Analyst Kyle Stock says many of these legacy automakers will not be able to keep up if they don't innovate going into 2019: "They are essentially using an old technology to fund the transition to the next, and the timing is fraught. Jump to the electric drive train too soon and the whole works will grind to a halt; jump too late and lose the EV race. Startups such as Tesla, critically, don't have to make this awkward jump. They are tiny and inexperienced, but they don't have to worry about feeding a legacy business as it slowly winds down."
Even so, it is all not bleak for the car giant as Ford still runs on monthly financials, which some argue do not accurately encapsulate a company's fiscal position. It is considering switching gears to quarterly reporting, which covers a longer period of time. Automakers are generally optimistic about the new year ahead.
"Despite recent market turbulence, the data we have in hand suggests an economy that remains on solid footing heading into the new year," Ford Chief Economist Emily Kolinski Morris said. "Consumers seem to be looking through market volatility to focus on continued positive job and income conditions."
Still, US auto sales are predicted to continue to drop in the new year, thanks to rising interest rates and less disposable income for consumers.