By Peter M. DeLorenzo
Detroit. Since we’re in the midst of a market frenzy that prizes circus wagon-sized pickup trucks and SUVs – and the massive profits that they’re generating – as a manufacturer it’s difficult to retain perspective. And it’s easy to see why.
After all, the average transaction price of a new pickup is around $44,000, and fully loaded luxury pickups regularly go for $70,000+, with full-zoot luxury SUVs pushing well into six figures. Those numbers are staggering, and the profits, as I said, are equally staggering. In fact, they’re addictive to the manufacturers.
The pickup truck/SUV sales juggernaut is powering Ford, GM and FCA to new levels of sustainability, at least in the short term anyway. Or, it can be looked at another way, unfortunately, because without the sheer earnings power derived from pickup trucks and SUVs, there is legitimate concern as to whether these companies would even be functioning today.
But then again, as I said last week, this current frenzy is not going to last. The automobile business is at its core a fashion business, and there will come a time when parade float-rivaling SUVs and pickups will fall out of favor. And when the pendulum swings back, it may not be because of rising fuel prices. Instead, it will probably be because the cost of these machines is rising faster than the market can keep up with.
Just yesterday, The Wall Street Journal reported that the Federal Reserve Bank of New York said that a record seven million Americans are three months behind – or more – on their car loan payments, which is even more than after The Great Recession. It doesn’t take a Futurist to determine that this is a giant bowl of Not Good.
With all the talk of electrification, autonomous vehicles and The New Mobility Future, to me the crucial component of transportation will be fundamental affordability. I realize that this sets off alarms in the halls of automobile companies, because for most auto executives “affordability” translates into being “cheap.” But that’s not what I’m talking about. I’m talking about quality machines that are within reach of the average consumer.
It really comes down to this: if the average consumer can’t find transportation that’s desirable, safe and affordable, where does that leave our transportation future? It’s fine to paint a rosy picture of shiny happy electrics and seamless autonomous vehicles careening across the landscape in a blissful stupor, but real people with real mobility needs are being priced out of the market, and it’s happening faster than auto executives even imagined it would.
That’s why I bristle at most of the blue-sky future projections about where we’re going in terms of mobility. This transition is going to be a long and painful one, and the near-term needs of consumers desiring affordable transportation are being squeezed by the gross profits being generated by luxury pickup trucks and SUVs, and the insatiable desire by auto executives to keep the train going.
But as automotive history has shown us, trends come and go. Styles and types of vehicles get hot and grow cold, and the resulting roller-coaster ride is always memorable (and excruciating for some). The companies that can ride the wave and be ready for what’s next, at least within reason, are the ones that will live to fight – and succeed – another day.
As you read this, the smart companies and tuned-in executives in their ranks are worrying about affordability right now. They understand that the super-heated lovefest for giant luxury SUVs and pickup trucks has a sell-by date, and we’re much closer to the end of the run than the beginning. And any economic event that might hasten a slowdown will just add to the hand-wringing. This has to be a sobering predicament for these companies, because the profits being generated right now are gargantuan, and without them it could get ugly quickly.
It will take auto executives with real cojones to step away from the current market euphoria and take a cold, hard look as to where this is all going. This is certainly not an easy thing to do, but it will be absolutely essential going forward.
I have no doubt that when it comes to automobiles and trucks, affordability is The Next Frontier.
And that’s the High-Octane Truth for this week.