Automakers face ‘perfect storm’ as buyers reject high prices at time of big capital spending
![Automakers face 'perfect storm' as buyers reject high prices at time of big capital spending](https://news7g.com/wp-content/uploads/2024/07/automakers-downturn-copy-780x470.jpg)
DETROIT — Investors are punishing automaker stocks this week after second-quarter earnings reports exposed industry-wide problems with slowing sales and high prices, just as companies are spending big to produce new electric and gas-powered vehicles.
Every auto company has its own problems, but what many have in common is a growing inventory of vehicles. seller a lot, requiring increased discounts to sell to buyers with tight household budgets.
Ford Car company, reported Q2 earnings decline due to electric vehicle losses and persistently high prices guarantee costs, led the decline. The company’s shares fell 20% this week. But other companies such as Automobile Corporation, Tesla, Stellantis And Nissanall saw their stocks fall by around 8% or even more.
Carlos Tavares, CEO of Jeep car and Ram maker Stellantis, said the big storm in the auto industry that he has been warning about for years is here. “We are in it,” he told reporters after announcing disappointing earnings on Thursday. “There is no question in my mind that this industry is going to be in turmoil.”
Soon after the coronavirus pandemic spread around the world in 2020, automakers were forced to slow production due to a global shortage of computer chips. At the time, high-income buyers who couldn’t afford to spend money on transportation or restaurants began paying more than sticker price for a limited supply of expensive vehicles. Automakers used their limited production to produce only the expensive stuff, and prices skyrocketed nearly 27% above pre-pandemic levels.
This trend continued until the end of last year, with companies and agency make big profits with lower than normal sales.
But as chip supplies returned, automakers ramped up production, and inventory at U.S. dealerships rose to about 1.8 million last year. It is now just under 3 million, a high but still a million below pre-pandemic levels.
The problem for the industry is that they continue to build expensive cars loaded with options — while most high-income buyers have already bought new car. The remaining buyers now cannot afford to buy much of what the dealers have in stock because of high prices and interest rates. Now the big profits from high prices truck and SUVs are paid to develop and build tram is starting to weaken.
“It’s ridiculous that anyone would be surprised that this party is coming to an end,” said Sam Abuelsamid, principal mobile analyst at Guidehouse. Details“There are only a few people who can afford such expensive cars, especially when interest rates remain so high for such a long time.”
The average price of a new vehicle in the United States peaked in December at $48,408, according to data from Edmunds.com. Prices fell slightly to $47,616 last month. Discounts, which have been few or nonexistent over the past few years, rose to an average of $1,819 per vehicle in June.
When the Federal Reserve raises interest rates, the new average interest rate car loan Interest rates rose from a low of 4.1% in December 2021 to 7.3% last month. That pushed the average monthly payment to $739 per month, with an average loan term of nearly six years, according to Edmunds.
The average price of a used car jumped more than 50% from pre-pandemic levels to a peak of $31,095 in April 2022. It fell to $27,277 in June as new car prices began to decline, Edmunds said.
Stellantis’ earnings were hurt by poor performance in North America. Tavares said the company’s prices were too high, driving potential buyers away from showrooms without hearing about low-interest financing and other discounts.
“Customers tell us they need more affordable prices,” he said.
Such demands have left Stellantis in a dilemma between offering lower prices and inflationary pressures on the business, Tavares said. He said Stellantis has had to cut costs to maintain profit margins at lower prices — something all automakers are now facing.
“We need attractive, high-quality products at competitive prices that ensure affordability for customers to buy our products,” said Tavares.
Tavares predicts the storm in the industry could last for years and could bankrupt some automakers.
Automakers, especially general managerFord and Stellantis abandoned small cars and even low-priced midsize cars five or six years ago, leaving them with little to sell to people who want a cheap car, Abuelsamid said. Some, like GM, still offer small, cheap SUVs. But people who don’t have a cheap car now are likely to have a harder time than their competitors, he said.
Industry analysts expect more discounts from automakers and the possibility of interest rate cuts from the Federal Reserve later this year and into next year. So for those who can, it may be a good idea to wait before buying a new or used car, said Eric Lyman, vice president of product at Black Book, which tracks auto prices.
“Smart buyers would be wise to hold off on pursuing a car purchase until we see continued declines in new and used car prices, as well as interest rates falling as everyone expects, to address the affordability crisis we are facing,” Lyman said.