Cars Could Make Comeback in Tough Times

DETROIT – Cars, which have become also-rans in a U.S. automotive marketplace dominated by SUVs and pickup trucks, could make a comeback if times get tough, says Charlie Chesbrough, Cox Automotive’s senior economist.

He’s not predicting a recession anytime soon. But the U.S. has seen the longest expansion of economic growth in modern history. That’s bound to eventually give, he tells Wards.  

If the economy goes seriously south and consumers consequently become more price-conscious out of hard-luck necessity, they may pivot and make cars rather than fullsize SUVs and pickups their vehicle of choice, he says at a Cox industry event here.

“We know that when times get tough, consumers look for value,” he says.

That means typical new-car buyers might switch to used vehicles, particularly “gently used” vehicles, he says.

Or, if they insist on buying a new vehicle, they may opt for a car, he adds. “We may see these cars have some life left in them.”

But for now, the car-segment decline continues. Cars dropped to about 28% of the new-vehicle market last year. Cox predicts they will sink to 26% this year, particularly as automakers such as General Motors, Ford and FCA have slashed car production – all but leaving that segment to international competitors such as Toyota, Honda and Hyundai.

The rising cost of new vehicles has become a major industry issue, with average transaction prices now exceeding $38,000.

“The biggest concern is affordability,” Chesbrough says. “The average MSRP has increased 21% from 2012 to 2019. If the economy falters, an easy way for consumers to respond would be to give up the SUV and go to a car.”

That rising cost is partly because automakers have put more technology in their products, including advanced driver-assist safety systems such as forward-collision avoidance features.

But the higher cost of vehicles today also is because consumers during the strong economic times of late have been drawn to higher-priced SUVs, CUVs and pickups.

Charlie Chesbrough_3

In a Cox survey, dealers, automakers and auto journalists all cited affordability as the No.1 industry concern.

The average monthly loan payment now stands at $586 for a new vehicle and $419 for a used unit, Chesbrough says. For leased vehicles, it’s $494. (Chesbrough, left)

For dealers, the worry is not so much that consumers in an economic downturn might buy used vehicles over new vehicles. (That’s an automaker concern, not a fret for auto retailers with used-car lots.)

Rather, the worst-case scenario for automakers and dealers alike is that hard-pressed consumers might buy nothing, deciding instead to keep their current vehicle.

But despite concerns here and there, the economy and the auto industry in particular remain relatively strong, says Jonathan Smoke, Cox Automotive’s chief economist, although he cites slowing economic growth (1.6% in last year’s fourth quarter) as a concern.

The industry and its dealers delivered 17 million vehicles in 2019, the fifth straight year of 17 million sales or higher.

Cox predicts sales will drop to 16.6 million this year. “That’s still healthy,” Chesbrough says. “We’re not expecting a collapse.”

Smoke calls 2020 “the year of the wild card.”