Detroit's auto giants are running out of room to grow

Driving the news: Asian brands are expected to top 50% of U.S. sales for a second straight quarter in Q3, Cox Automotive predicts, while the Detroit 3 fall to just over 36% — their lowest share on record.

• Toyota is closing in on No. 1 GM, while Hyundai Motor Group is expected to pass Ford for third place.

The shifting landscape is largely the result of choices Detroit has made over decades.

• "The domestics made interesting decisions about what they're going to stand for," Erin Keating, Cox Automotive's executive analyst, told reporters at a briefing last week.

• "If you don't have vehicles to catch consumers where they are, other manufacturers will step in."

State of play: For years, Detroit's automakers responded to competitive pressure by concentrating on the vehicles and markets where they had the biggest advantages.

• They largely abandoned sedans and small cars in the U.S., ceded ground in many overseas markets and doubled down on large vehicles that command premium prices and generate outsized profits.
• And it worked, for the most part. But now, amid seismic market shifts, their room to maneuver is shrinking.

Zoom in: Soaring fuel prices have accelerated a shift to hybrid vehicles, where Detroit's cupboard is surprisingly bare.

• Hybrids now account for more than one in five new vehicles sold in the U.S., up from just 13% a year ago.
• Meanwhile, Ford sells hybrid versions of the Maverick and F-150 pickups, but GM has virtually none for mainstream buyers.
• Stellantis is just now rolling out its first hybrid in the new Jeep Cherokee.

That favors companies like Toyota, Honda, Hyundai and Kia, which spent years building broad hybrid lineups while Detroit focused mostly on EVs — only to pull back as EV demand softened.

• "With consumers continuing to migrate toward hybrid vehicles and passenger cars, segments where Asian manufacturers maintain significant advantages, the shift in market share is expected to continue," Cox senior economist Charlie Chesbrough said.

Overseas markets, meanwhile, which once represented incremental growth, are now places where Detroit has to fight simply to remain relevant.

• Chinese automakers dominate their home market and are now expanding rapidly in Europe and emerging markets with inexpensive high-tech EVs and hybrids.

By the numbers: China now commands 25% of the worldwide market, up from 14% in 2020, while U.S. carmakers' global share has stayed flat at 12%, according to the Center for Automotive Research.

• In Western Europe, Chinese brand car sales have tripled since 2020, while in Mexico, they soared from less than 1% to 14.5% last year.

After years of retrenchment in Europe, Ford is now partnering with China's Geely to manufacture low-cost vehicles in Spain.

• Stellantis is deepening its partnership with China's Leapmotor to better compete in Europe.
• In China, GM stabilized its sinking business by leaning on products developed locally with Chinese partners SAIC and Guangxi Automobile Group.

Reality check: Detroit's pickup-and-SUV fortress is still enormously profitable.

• Sales of pickups and SUVs remain strong, and consumers are proving to be incredibly resilient. And even the gas-price shock could be a temporary pain.
• "Buying behavior does not change quickly, and most Americans have ridden the gas-price rollercoaster before," Keating noted.

What we're watching: Carmakers are looking to software subscriptions, energy and defense as potential future sources of revenue, but those are small compared to their core vehicle business.

The bottom line: The problem for Detroit is that the paths to growth are getting harder to find.

• "There's just not a lot of juice left to squeeze," says Mobility Global's Peter Nagle, associate director of demand forecasting for the Americas.