Current:Home > FinanceAutomakers hit ‘significant storm,’ as buyers reject lofty prices at time of huge capital outlays-DB Wealth Institute B2 Expert Reviews
Automakers hit ‘significant storm,’ as buyers reject lofty prices at time of huge capital outlays
View Date:2024-12-23 18:55:22
DETROIT (AP) — Investors are punishing automakers’ stocks this week after second-quarter earnings reports exposed industrywide issues of slowing sales and high prices, just as the companies are having to spend huge sums to make new electric and gas vehicles.
Each auto company has unique problems, but common to many are growing vehicle stockpiles on dealer lots, requiring increased discounts to sell them to buyers with stressed-out household budgets.
Ford Motor Co., which reported a drop in second-quarter earnings due electric-vehicle losses and persistently high warranty costs, led the declines. Its shares have fallen 20% this week. But others such as General Motors, Tesla, Stellantis and Nissan, all saw their shares drop about 8% or even more.
Carlos Tavares, CEO of Jeep and Ram maker Stellantis, said a significant auto-industry storm he’s been warning about for several years has arrived. “We are in it,” he told reporters after releasing disappointing earnings Thursday. “For me, it’s a no brainer that this industry is going to be in turmoil.”
Shortly after the coronavirus pandemic spread worldwide in 2020, automakers had to slow their factories due to a global shortage of computer chips. At the time, high-income buyers who couldn’t spend money on travel or restaurants started paying above sticker prices for a limited supply of pricey loaded-out vehicles. Automakers used their limited production to build only expensive stuff, and prices soared nearly 27% from pre-pandemic levels.
The trend continued into late last year, with companies and dealerships making big profits with lower-than-normal sales.
But as chip supplies returned, automakers ramped up production, and inventory on U.S. dealer lots grew to around 1.8 million a year ago. Now it’s just under 3 million, high but still a million short of pre-pandemic numbers.
The problem for the industry is that it kept building expensive vehicles loaded with options — while most high-income buyers had already bought new vehicles. The remaining buyers now can’t afford much of what dealers have in stock because of high prices and interest rates. Now the big profits from pricey trucks and SUVs that paid to develop and build electric vehicles are starting to wane.
“It’s kind of ridiculous that anyone would have been surprised that this party was going to come to an end,” said Sam Abuelsamid, principal mobility analyst for Guidehouse Insights. “There are only so many people that can afford vehicles this expensive, especially when interest rates have remained as high as they have for so long.”
The average price of a new vehicle in the U.S. peaked in December at $48,408, according to data from Edmunds.com. It dropped a little to $47,616 last month. Discounts, which were minimal or nonexistent for the past few years, rose to an average of $1,819 per vehicle in June.
As the Federal Reserve raised interest rates, the average new auto loan rate jumped from a low of 4.1% in December of 2021 to 7.3% last month. That boosted the average monthly payment to $739 per month, with an average borrowing term of nearly six years, according to Edmunds.
The average price of used vehicles soared more than 50% from before the pandemic to a peak of $31,095 in April of 2022. It has subsided to $27,277 in June as new vehicle prices started to fall, Edmunds said.
Stellantis’ earnings were crimped by a poor performance in North America. Tavares said the company’s prices are too high, causing potential buyers to leave showrooms without hearing about low-interest financing and other discounts.
“Our customers are telling us that they need more affordability,” he said.
Such demands have put Stellantis in a squeeze between offering lower prices, and inflationary pressures on the business, Tavares said. Stellantis, he said, must reduce costs to preserve profit margins at lower prices — something that all automakers are now facing.
“We need appealing products, high-quality products at a competitive cost that protects the affordability that makes the customers buy our products,” Tavares said.
Tavares predicted that the industry storm could last several years, and it could cause some automakers to fail.
Automakers, especially GM, Ford and Stellantis, abandoned lower-cost small and even midsize cars starting five or six years ago, leaving them little to sell to those who want affordable vehicles, Abuelsamid said. Some, like GM, still offer affordable smaller SUVs. But those without affordable vehicles now are likely to struggle more than their competitors, he said.
Industry analysts expect more discounts from automakers and possible interest rate cuts from the U.S. Federal Reserve later this year and into next year. So for those who can, it might be wise to wait before buying a new or used vehicle, said Eric Lyman, vice president of products for Black Book, which tracks auto prices.
“Savvy buyers would be wise to pause their pursuit of a vehicle purchase until we see some more declines in both the used and new vehicle pricing, as well as the interest rate declines that everybody is expecting, to address the affordability crisis that we’re in,” Lyman said.
veryGood! (19679)
Related
- After years of unrest, Commanders have reinvented their culture and shattered expectations
- Chicago-area school worker who stole chicken wings during pandemic gets 9 years: Reports
- Dairy Queen announces new 2024 Fall Blizzard Treat Menu: Here's when it'll be available
- 'Unbelievably good ending': 89-year-old missing hiker recovered after almost 10 days
- LSU leads college football Week 11 Misery Index after College Football Playoff hopes go bust
- With over 577,000 signatures verified, Arizona will put abortion rights on the ballot
- Country Singer Parker McCollum Welcomes First Baby With Wife Hallie Ray Light
- Musk’s interview with Trump marred by technical glitches
- Taylor Swift's Dad Scott Swift Photobombs Couples Pic With Travis Kelce
- Victor Wembanyama warns opponents ‘everywhere’ after gold medal loss to USA
Ranking
- Former NFL coach Jack Del Rio charged with operating vehicle while intoxicated
- Book Review: ‘Kent State’ a chilling examination of 1970 campus shooting and its ramifications
- Hoda Kotb Shares Outlook on Her Dating Life Moving Forward
- Chicago-area school worker who stole chicken wings during pandemic gets 9 years: Reports
- Oregon's Dan Lanning, Indiana's Curt Cignetti pocket big bonuses after Week 11 wins
- 20 Best Products That Help Tackle Boob Sweat and Other Annoying Summer Problems
- George Santos wants jury pool in his fraud trial questioned over their opinions of him
- Sister Wives Season 19 Trailer: Why Kody Brown’s Remaining Wife Robyn Feels Like an “Idiot”
Recommendation
-
This is Your Sign To Share this Luxury Gift Guide With Your Partner *Hint* *Hint
-
Takeaways from AP’s story on Alabama’s ecologically important Mobile-Tensaw Delta and its watershed
-
The New York Times says it will stop endorsing candidates in New York elections
-
20 Best Products That Help Tackle Boob Sweat and Other Annoying Summer Problems
-
When does 'Dune: Prophecy' come out? Release date, cast, where to watch prequel series
-
New Massachusetts law bars circuses from using elephants, lions, giraffes and other animals
-
I’m an Expert SKIMS Shopper and I Predict These Styles Will Sell out This Month
-
Will the attacks on Walz’s military service stick like they did to Kerry 20 years ago?