What the Golden State Says About the Market

Although many people in other parts of the country tend to treat California with a bit of an eyeroll if not outright dismissal, like it or not, California is in many ways more reflective of the future than some people would like to admit or even imagine. While those of us who live in places like Detroit think of there being two sections to California—Southern and Northern—if you look at a map you’ll see that “Northern California” is essentially only halfway up. The third-largest state (behind Alaska and Texas), California has everything from deserts to snow-capped mountains and a massive concrete footprint, to boot. That is, home to some 39.5-million people, it has three cities in the top 10 by population in the U.S. (#2, LA, #8 San Diego, #10 San Jose). And in terms of the make up of the population, it is a “minority majority” state, which means that non-whites make up more than 50% of the population, And those shifts occurred, in some cases, rather rapidly. According to a study by Pew Research, four of the biggest counties in the U.S.—San Diego, Orange, Riverside, and Sacramento—were white majority in 2000 but now have a larger population of Hispanics.

At this point, you might be wondering why I am so obsessed with looking at California. It’s because I’ve been looking at the 2019 sales numbers for the state as reported by the California New Car Dealers Association (https://www.cncda.org), and if the state is something of a bellwether, then the auto industry not only in the other 49 states, but elsewhere in the world, as well (if California was a country, its GDP would make it #5 in the world), need to pay attention to what is going on there and calibrate accordingly.

First of all, in 2019 the state’s light vehicle registration was 1.89 million, down from 2 million in 2018 and it is expected to go down to 1,82 million in 2020. Not surprisingly, the biggest vehicle segment was non-luxury SUVs, taking 31% of the total market. Coming in second place—back at 19%--were small cars. The rounding out the market: pickups and vans at 16%, non-luxury midsize and large cars at 12%, luxury SUVs at 11%, and luxury and sports cars at 11%. If you take those last two lux categories and add them together, then arguably luxury is second in market size.

Perhaps even more surprising than the number of high-priced vehicles that are being registered in California is the percentage of the total market that hybrid/electric vehicles have in the state: 13.2%. Both hybrids and electric vehicles are on an upward climb while there is a decline in plug-ins (e.g., in 2018 there were 62,847 plug-ins registered but 46,160 in 2019).

Given the EV penetration, it may not be surprising that the top-selling vehicle in the “near luxury car” category is the Tesla Model 3. What may be surprising, however, that Tesla shows up eighth in the rankings of the top-selling brands in the state, with 3.8% of the California market. That puts it behind Toyota and Honda (both companies having double-digit shares of the market), Ford, Chevy, Nissan, Mercedes, and Subaru (all of which having single-digit shares). It puts Tesla ahead of BMW, Kia, Lexus, Hyundai, Jeep, VW, and Mazda. Also notable about Tesla in California, it is one of the 10 brands that saw registrations increase in 2019 compared to 2018 (in order from most to least: Porsche, Mitsubishi, Ram, Kia, Hyundai, Tesla, VW, Volvo, Dodge, BMW).

However, it is important to know that the Honda Civic was far and away the best-selling vehicle in California, with 75,915 registrations in 2019. Which is rather amazing inasmuch as it even handily trounced the Ford F Series, which was at 50,152. Which then brings us to the Tesla Model 3, which was at 59,514. (It is interesting to consider that in the context of the F Series because according to the California Department of Food and Agriculture, “Over a third of the country's vegetables and two-thirds of the country's fruits and nuts are grown in California. California is the leading US state for cash farm receipts, accounting for over 13 percent of the nation's total agricultural value.” Presumably, they use a lot of trucks.

So what do we see here? There’s the importance of small. There is the value of lux. And there is the growing trend of electrification. There is an evident softening in the market. One can then conclude that those who are positioned in these sweet spots may find themselves doing well, while those who don’t. . .

On a brighter note: the automobile was largely responsible for the fast-food industry. The first-ever McDonald’s was opened in San Bernardino in 1940. Yes, we have California to thank for that.