To absolutely nobody’s surprise, U.S. auto sales rose 3.5 percent in April. Industry sales are, after a faintly disappointing March, back on pace for a modest full-year gain.
Another all-time best, then? Why, yes, that looks likely.
Well, isn’t this a rational marketplace?
Oh, there are outliers. Volkswagen’s U.S. sales are falling -- post-cheating scandal, for example. Small-car brands such as Fiat and Smart are up against cheap gasoline.
But the overall auto market keeps ticking up month after month. If 2016 sales top 2015, that’s seven straight years of growth, the longest since 1909-17.
Most sales streaks flame out two to three years in. But after a dismal 2009, the industry has kept disciplined. Companies haven’t done stupid stuff.
This far into an expansion, everybody has done the easy, the obvious.
Now growth requires more risk: probing the edges of subprime lending, more leasing, higher incentives, longer vehicle loans, maybe more fleet sales.
So far, we can see the odd automaker with a singed glove here or there, but nobody is bursting into flames.
Mark Wakefield, managing director of the Americas auto practice at AlixPartners, calls it classic “top-of-cycle playbook.”
Wakefield expects U.S. auto sales to rise 2 percent this year before a slight decline in 2017. Some other forecasters expect marginal growth in 2017 before a gradual downturn in 2018.
“I’m glad to see many of my clients taking steps to protect themselves,” Wakefield said, citing plans to re-lease used vehicles coming off leases, exploring healthy fleet business or learning to manage residual values. “There aren’t a lot of companies looking at [new-vehicle] sales of 19 million or 20 million a year.”
No automaker has been more outspoken about curbing sales to rental fleets and focusing on retail sales than General Motors over the past year. In April, GM’s overall sales declined 3.5 percent, but the automaker said its retail volume rose 3 percent.
TrueCar analyst Eric Lyman called GM’s effort “a positive move” that will pay off long term in higher residual values on used vehicles.
GM’s long play, looking out midterm with more late-model used vehicles in the marketplace, is a prime example of automakers preparing for post-expansion.
It’s a cyclical industry, even if we’ve had a spectacular run of good fortune.
As Wakefield put it, “good players will miss the rocks as the tide goes out. The less skillful won’t.”
At this point, the eventual downturn is looking more like a shallow and relatively short decline than a wrenching mess like the Great Recession. But my experience through several business cycles is that it’s hardest to see the bottom just before cresting the top.
Fortune favors the prepared.