Slowing OEM Production to Fuel Affordability Challenge, Analyst Says

  • Bianca Chan
  • December 6, 2018
  • Risk

© Can Stock Photo / pazham

Recent OEM exits of lower-priced vehicle segments will limit availability and squeeze auto affordability in 2019, said Jonathan Smoke, chief economist at Cox Automotive Inc.

“We’re starting to see announcements from major manufacturers about ceasing production of mostly more affordable cars, and so that reduces the number of units available for sale,” Smoke said.

In late November, General Motors announced plans to scrap production of most sedans and small cars by 2020. In April, Ford Motor Co. announced the cancellation of various U.S. sedan models to focus on more popular SUV and truck segments.

These cutbacks “cause that affordability challenge to get worse, because what’s increasingly left in the new-vehicle market are the more expensive vehicles,” Smoke said.

Used cars, too, will likely also face inventory trouble. “We’re at a point in the market cycle where [used-car] supplies are also now starting to tinker off,” he said. “We are predicting that the wholesale market is going to see small — one or two percentage point — declines in vehicles coming into the market, mainly a function of the fact that the new-vehicle market has started to slow down over the last couple of years. Today’s used car is yesterday’s new car and, as a result, it’s been inevitable that inventory is going to be a challenge.”

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