GM-Led Carmakers Seen Adding to 2014 Gains as Oil Tumbles

By David Welch, Jeff Green and Craig Trudell

GM, Ford and other sellers of autos in the U.S., already benefiting from falling gasoline prices, are poised for another year of gains in 2015 after oil dropped below below $50 a barrel for the first time in a half decade.
Light-vehicle sales may rise to 16.7 million or more this year, Toyota Motor Corp. said Monday, from 16.5 million in 2014, the most since 2006. That would be a sixth year of growth, building on December’s 16.9 million annualized pace, adjusted for seasonal trends. All automakers sold more cars and light trucks last month compared with a year earlier, and trucks closed out the year with 52 percent of the market, outselling cars every month.
The decline in oil benefits the industry by reducing the cost of keeping cars running. It’s especially good for sellers of trucks because it makes buyers less reluctant to own bigger vehicles with lower gas mileage.
At General Motors Co. (GM), Ford Motor Co. (F) and Fiat Chrysler Automobiles NV (FCAU), pickups accounted for about 30 percent of U.S. vehicle sales in
December, which is a level not seen in almost a decade, said John Krafcik, president of Santa Monica, California-based vehicle pricing website TrueCar Inc.
“That’s huge,” he said. “Gasoline prices have played a big role. Can the Big Three maintain this level of pickup sales?”

Photographer: Daniel Acker/Bloomberg

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Krafcik said it’s possible.
The gain is supported by the GM’s all-new Chevrolet Colorado and GMC Canyon medium-sized pickups, which just went on sale last fall. The big sales don’t fully reflect Ford’s revamped aluminum-bodied F-150, which went on sale in November. When Ford is up to full production, it should be selling even more trucks, Krafcik said.
Even with reduced output, Ford’s F-Series was the top-selling truck line for a 38th straight year and best-selling vehicle of any kind for a 33rd straight year.

Price Discipline

The biggest risk facing the industry is an incentive battle between carmakers who are investing in new vehicles and more factories to turn them out.
Automakers are “on a path to supply as many as 20 million vehicles” during the current economic cycle, Morgan Stanley said in a research note. That would far exceed the annual record of 17.4 million U.S. light-vehicle sales, set in 2000, which could spur competing come-ons by car companies.
Not only are automakers adding production, but a strong dollar will make it easier for automakers to add content without raising prices. Japanese automakers, riding a weak yen, may be especially prone to cut prices in that way, said Mark Wakefield, managing director and head of the automotive practice at consultant AlixPartners.
A strong dollar and growing economy, also will give European and Asian carmakers an incentive to send more vehicles to the U.S. market, said Maryann Keller, an independent automotive consultant in Stamford, Connecticut. Too many models seeking buyers will lead to lower prices -- and lower profits.
“This industry always overshoots,” Keller said in a phone interview. “There is an enormous increase in supply coming.”

Gasoline Prices

In the meantime, consumers are getting some help from cheap interest rates and fuel prices are helping sales for all vehicles, said Wakefield. The average price of a gallon of gasoline fell to $2.199 on Jan. 4, the lowest since May 2009, according to AAA, the motoring group.
“Gas prices by far are the biggest deal,” Wakefield said. “If you think about a year ago, with gasoline prices more than a dollar more, that’s $150 billion a year of a basic stimulus for consumers.”
With cheap fuel and interest rates helping out, Toyota Motor Corp. (7203) sold a record number of SUVs in 2014, said Bill Fay, group vice president for Toyota’s U.S. sales arm. Fay predicted 2015 will be a sixth straight year of industrywide sales growth. The company squeezed more Highlander SUVs out of its assembly plant in Princeton, Indiana. The company will also add a third shift to its Tacoma pickup plant in Tijuana, Mexico, in April, Fay said.
Toyota also concluded a 13th straight year in which its Camry was the best-selling car in the U.S.
Nissan is gearing up to introduce its new Titan pickup truck later this year. Fred Diaz, Nissan’s senior vice president for U.S. sales, marketing and operations, said he expects strong sales, especially since the company has enjoyed a boost from its Murano and Rogue SUVs.
“The truck market is going to stay strong,” Diaz said in a telephone interview. “Our new truck can’t launch fast enough for us. Lower gas prices are always going to help you sell a lot more trucks and bigger SUVs.”