- November US auto sales came it at a near-record pace of 17.5 million units.
- Average sales prices were also extremely high by historical standards. The US market is on track to notch another robust year of new-car sales — the fifth in a row.
- Almost all of the new cars sold in the US and around the rest of the world run on gasoline, but that hasn’t stopped arguments about a massive and costly transformation of the auto industry by electric vehicles.
- There is no transformation. And automaker layoffs have nothing to do with the future and everything to do with a past in which companies created a mismatch between manufacturing capacity and market demand.
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November auto sales in the US were epic: the sales pace came in at 17.5 million vehicles, close to a record level. November sales actually improved from the same month last year, despite an unending chorus of negative prognostication and considerable hand-wringing about “peak auto.”
Even if sales had cratered in November, automakers wouldn’t be pushing the panic button because the vehicles they are selling in the US are rolling off dealer lots at an average price of nearly $36,000.
For car companies, this is magical. Happy times! For five years, the most competitive auto market in the world has been witnesses historically robust sales of rather expensive vehicles, yielding solid profit margins. Automakers are supposed to lose money from time to time — it’s a cyclical business — but these days, they just aren’t.
Because this has been going on for a while, the naysayers are now looking to overall employment in the sector and shifting research-and-development priorities to contrive desperation among manufacturers.
“Carmakers are eliminating more than 80,000 jobs during the coming years,” Bloomberg reported on Tuesday, before noting that “[a]lthough the cuts are concentrated in Germany, the U.S. and the U.K., faster-growing economies haven’t been immune and are seeing automakers scale back operations there.”
Too much capacity for market demand
The industry is trimming headcounts, especially in Europe, because automakers have excess capacity for market demand. The best time to be undertaking this right-sizing is when balance sheets are flush. General Motors, for example, has been attempting to retire an extra million units of capacity that it doesn’t need, given its annual US sales totals.
This is a structural problem that the entire industry is aware of and is addressing. The bottom line is that people are going to be unemployed, an awkward reality in Europe, where the carmakers, states, and labor are far more entangled than in the US.
To soften that blow, a narrative about dialing back capacity to invest in new technologies has developed. And while it is true that a shift to electrified vehicles demands investment, it isn’t as costly as it looks, and it’s entirely unclear that the global market for electric cars is going to surge anytime soon. Almost all of the 17.5 million vehicles sold in the US in November run on gas.
The other thing to bear in mind is that although automakers are throwing around some big numbers, to develop one new vehicle costs a cool billion — and even without electrification on the horizon, automakers would have to invest heavily in R&D to maintain and enhance their internal-combustion architectures.
The alleged “transformation” of the car business has been underway for a decade now. What we’ve gotten is electric cars making up only about 2% of global sales, while putative disruptors, such as Uber and Lyft, have revealed significant challenges for profitability.
That’s not a transformation; it’s a distraction.
A convenient distraction if you want to cut jobs
And a convenient one, at that. European carmakers need to employ fewer workers, but layoffs are rough. Enter the great transformation, which provides a more elevated justification than “we’re stuck with labor deals that have us building more cars than customers in Europe want to buy.”
In this context, EVs have become a zombie story. Sales are terrible, Tesla has constantly lost money while traditional automakers have raked it in, consumers are still hung up on the cost, and charging infrastructure is spotty. But prepare yourselves for a fresh and exciting wave of EVs that’s going to upend transportation as we know it!
The assertion doesn’t match the data, but woe to those who cite the data. Americans in particular went to car dealers in droves in November and shelled out tens of thousands of dollars to drive home big SUVs and pickups that run on cheap gas and can be refueled in five minutes just about anywhere.
This isn’t the first time I’ve pointed this out. In fact, it feels like the 10,000th time. And I say that as someone who actively hopes that EVs achieve much greater market penetration and who has spent my own money on two hybrid vehicles.
But reality bites, man. And it does no one any good to deny it.