The U.S. auto industry is in the midst of an unprecedented stretch of growth and prosperity.
Light-vehicle sales are on pace to reach 17 million this year for a sixth straight year of volume gains. That would be the longest string of annual sales increases since the 1920s, when the automobile was in its adolescence. And if automakers, suppliers, lenders and dealers continue to exercise reason and restraint, robust sales could continue for several more years.
Normally, as an economic expansion matures, strains and excesses appear as companies chase market share. But there are few signs of that this year.
Automakers generally are matching production to demand. As a result, their incentive spending is modest and inventories are hovering around near-ideal levels. Suppliers and automakers are willing to invest if necessary but remain cautious, especially about brick and mortar.
Vehicle loans, including subprime, are widely available but lenders are managing their risk exposure carefully and delinquencies remain relatively low.
Auto dealers also are managing capital cautiously despite strong margins and rising sales volume.
In short, the auto industry is profitable top to bottom, has been so much longer than usual and shows few signs of letting that slip. Painful memories of the Great Recession may be enough to prevent or at least delay excesses.
The profitability is good because great challenges lie ahead.
Product development is getting more expensive. Manufacturers and dealers must invest in a variety of new technologies without a clear idea of which of them will prevail. That requires big capital reserves.
Fiat Chrysler Automobiles CEO Sergio Marchionne believes further consolidation is inevitable, arguing that manufacturers cannot continue to spend huge amounts of capital to develop products that are similar to those of their competitors.
Continued strong vehicle sales have kept the cash flowing for manufacturers and dealers. Owners and executives must manage not only for profitability but also to accumulate the capital for long-term plans.