Car makers’ silver lining turns out to have a cloud that could hurt US consumers
Most companies beat or met their estimates in June, but the cars Americans are buying are the ones most exposed to Trump’s proposed duties on imported vehicles and parts
Global car makers weighed down by the threat of tariffs could do with some good news, so a strong month for US car sales should have come as a relief. Alas, even this silver lining has a cloud.
At face value, the market was alive and kicking in June, with most companies beating or at least meeting estimates. Even Nissan, which has been struggling in the US, reported a gain instead of the large sales decline predicted by analysts.
Here’s the wrinkle: America’s obsession with gas-guzzlers means consumers are buying up models that are most exposed to President Donald Trump’s proposed duties on imported vehicles and parts, not to mention oil prices that are at a four-year high.
Total light-vehicle sales rose about 2%. For the Japanese car makers, sales of light trucks — a segment that includes minivans, sports utility vehicles (SUVs) and pickups — rose about 10.5% from a year earlier, while passenger cars dropped by roughly the same amount. Light trucks now account for almost 70% of all US vehicle sales, a record high.
Toyota posted record monthly and first-half numbers for light-truck varieties such as the RAV4, Highlander and Lexus LUV. At the same time, the Japanese car maker noted that more than half of its RAVs — the company’s fastest-growing model — are produced in Japan for sale in the US. The remaining 45% are made in Canada.
Around half of Toyota’s US sales in June were imports. The cost of these cars could go up by at least $2,000-$5,000 once tariffs take effect.
There are other signs of trouble brewing beneath the surface. Car makers such as General Motors attributed sales gains to a strong US economy, increased take-home pay, elevated consumer confidence and robust household balance sheets. But at the same time, car-loan terms have been stretched to close to 70 months, vehicle-finance interest rates are at a nine-year high, and the number of buyers who owe more than their car is worth has not retreated from recent peaks, according to car market researcher Edmunds. And there are those rising oil prices.
Hopes that the US is entering a new vehicle cycle appear premature. Perhaps, consumers are jumping to buy and lease now before the tariffs hit and while rates are not rising too fast. That means trade threats could be dislocating the gradual — and healthy — slowdown of an overheated market. Nissan’s case is key: Expected by analysts to show a 7% drop, big discounts and incentives instead helped the car maker post a 1.2% uptick.
Investors are not buying the good news story: Shares of car makers fell across the board in the US and in early trading in Asia.
The fact is that American consumers will pay for Trump’s trade war with their incomes and jobs, as will car makers. One month of sturdy sales cannot change that reality.