Detroit Auto Show: Signs Of Trouble Ahead

Buckle up!

Buckle up!

Interpreting what an auto show has to say about the state of the car industry isn’t always easy. Though there’s enough groupthink in the industry to regularly produce obvious trends (current example, “Shooting Brake” three-door sportscar hatchbacks), these are mostly just the superficial fluctuations of any fashion-oriented business. Looking deeper, however, connecting a show’s trends with the broader market context, is often quite difficult. Not so for this year’s Detroit Auto Show, however. Simply scanning through the new debuts, the lack of mass-market or utilitarian offerings was immediately noticeable. More to the point, the glut of luxury products was inescapable.

This closely tracks the emerging trend in the US market: while China has surpassed the US in volume, the US market remains the source of most of the industry’s profits. And it only takes a quick glance at some basic 2013 segment analysis to understand why: while China is still gobbling up low-margin, mass-market cars, the US is buying the trucks, SUVs and most importantly, the luxury cars that are boosting global profits. Luxury cars were the US market’s fastest-growing segment in 2013, up a whopping 13.5%. Crossovers and pickups both enjoyed double-digit profit growth as well last year, with SUVs coming close and mass-market cars lagging significantly. No wonder then, that easy profits seem to be leading to old school, chest-thumping complacency, and a decided emphasis on style over substance at the Detroit Auto Show.

But as I point out in my latest Bloomberg View column, the issue that makes me worry most about the industry’s return to glitzy form is the fact that growth in high-profit sales is coming from financial innovation, not a recovering economy or technological breakthroughs. Car loans are longer and looser than ever, and as a result they have surpassed credit cards as the second largest form of US consumer debt after Student Loans. In short, the industry’s roaring lux-and-trucks boom is built on a foundation of sand. And given the huge pain that the auto industry has proved it can inflict on the larger economy when it loses sight of the next inevitable downturn, it’s not surprising that I’m not the only auto writer to catch the familiar sensation of a roller coaster that has reached its zenith and is about to plunge down again.

Buckle up folks, this could be a wild ride.