Auto Industry Healthy Enough To Withstand Next Downturn, Analysts Say U.S. auto sales are expected to decline for the second year in a row. But analysts say the industry is relatively healthy as consumers flock to higher-profit SUVs and trucks.
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Auto Industry Healthy Enough To Withstand Next Downturn, Analysts Say

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Auto Industry Healthy Enough To Withstand Next Downturn, Analysts Say

Auto Industry Healthy Enough To Withstand Next Downturn, Analysts Say

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  • <iframe src="https://www.npr.org/player/embed/586017214/589802277" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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DAVID GREENE, HOST:

2017 was yet another good year for the auto industry, but this year may not be as strong. Automakers report February sales today, and analysts are predicting sales will remain flat after years of strong growth. But NPR's Sonari Glinton reports that the auto industry is in better shape to survive the next economic downturn.

SONARI GLINTON, BYLINE: Things have been good in the car industry for quite a while. 2017 was one of the best years ever, but it was a comedown from all-time records.

MARK SCARPELLI: I can tell you that coming off a plateau in the last couple years for sure.

GLINTON: That's Mark Scarpelli. Now, he runs the Raymond Auto Group, a group of dealerships in the Chicago suburbs, with his father Raymond Sr. and his brother Raymond Jr. Scarpelli says with the forecast for slowing sales for 2018, normally he'd be worried. But he says the car companies are making much more money off of each car. They cut labor costs. They're more efficient. All that has caught on, he says.

SCARPELLI: Same could go for local automobile dealers such as ours. We have made sure that we keep our budgets in line - marketing, inventory, handling costs. You know, we carry what we need. We don't go in excess to carry things on our lot.

GLINTON: Scarpelli says one of the reasons the industry is doing well is that the customers are buying SUV and trucks, and those are really profitable.

SCARPELLI: You know, there has been a seismic change in our industry in people's wants and needs. You know, a few years back, the sedan or a coupe was quite popular.

GLINTON: All that cash coming in from SUVs and trucks means that employees of General Motors, Ford and Fiat Chrysler group all took home fat profit-sharing checks. Kristin Dziczek is with the Center for Automotive Research.

KRISTIN DZICZEK: I'm just going to pull up my profit-sharing spreadsheet here, if you don't mind, to put it in some perspective of where we've been over time. Just take a second here - sorry.

GLINTON: OK, while she looks for the answer, it's actually $11,750 for General Motors assembly line workers. And that represents about 30 percent of their salary for the lower paid workers. But those are not higher wages. Dziczek says holding down salaries and relying on profit-sharing means that the companies can cut costs or make changes in production without resorting first to massive layoffs. Dziczek says there are a whole list of things to be worried about in the near future. Consumer credit appears to be slowing, and the default rate on auto loans is rising, and gas prices are at their highest since 2014, and that could hurt an industry increasingly dependent on SUVs and trucks. Despite all that, Dziczek says about the car companies...

DZICZEK: They're much, much more ready to weather a downturn in automotive sales.

GLINTON: Jessica Caldwell is an analyst with edmunds.com. She says the car companies have become nimbler and more responsive to consumer tastes. Caldwell says today's SUVs are more fuel efficient, making them more immune to the price at the pump. She says car companies are in a very good position to survive a downturn or even a recession. But coming changes in technology, the self-driving car thing, that could be a whole different story.

JESSICA CALDWELL: And now we're looking at something that's so much larger. You know, can my business essentially stay relevant in the next two decades? Which I don't think was ever a fear in the past 20 years.

GLINTON: Apparently, the car business can't take anything for granted - not anymore.

Sonari Glinton, NPR News.

(SOUNDBITE OF TIDES FROM NEBULA'S "HIGGS BOSON")

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