Sunny outlook persists as sales slide deepens

on Aug8

Except for Toyota, major players’ sales all fell in July. Photo credit: BLOOMBERG

July marked the steepest year-over-year decline for U.S. new-vehicle sales since 2010 and the industry’s seventh down month in a row, but there’s no sign of panic at most automakers.

A closer look at last month’s 6.9 percent slide shows companies addressing their most pressing needs — clearing out old inventory before a new model year, adjusting production or slashing fleet volume — rather than just trying to maximize volume.

Toyota Motor Sales was the only major automaker with a July sales gain. Its 3.6 percent increase enabled the Toyota brand to take first place over Ford for the first time since March 2010.

Carter: SAAR above 16 million good for all

“We’re not on a sleigh ride down,” Bob Carter, executive vice president of sales at Toyota Motor North America, said last week at the CAR Management Briefing Seminars in Traverse City, Mich. Over the next 24 to 36 months, Carter said, the industry’s annualized selling rate should be “in the mid to the upper 16 millions, and that’s good for dealers, that’s good for customers and that’s good for OEMs.”

General Motors’ chief economist, Mustafa Mohatarem, said the economy remains strong.

“U.S. total sales are moderating due to an industrywide pullback in daily rental sales,” he said. “We anticipate U.S. retail vehicle sales will remain strong for the foreseeable future.”

After July’s decline, U.S. auto sales of 9.9 million in the first seven months are 2.9 percent below the same period in 2016. Last year’s full-year total of 17.55 million vehicles was an industry record.

‘Oversold’ market

Compensating somewhat for lower unit volumes, consumers are paying more per vehicle, suggesting total industry revenue is about the same as a year ago. Through seven months of 2017, average transaction prices after incentives rose 2.6 percent, Kelley Blue Book calculated.

Karl Brauer, executive publisher for Kelley Blue Book and Autotrader, said the auto industry is healthy, though brands heavily dependent on cars are suffering. “Brands with fresh and appealing trucks and SUVs continue to do well, many of them seeing record volumes on vehicles with high profit margins,” he said.

Jonathan Smoke, chief economist for Cox Automotive, said low interest rates and stable credit conditions are still supporting vehicle sales.

“The economy and the consumer are not only in good shape, they’re picking up momentum as the year progresses,” Smoke said. “The pullback in new-vehicle sales is not being driven by underlying economic weakness but rather by an oversold automotive market.”

Fleet down, incentives up

Except for Toyota, major players’ sales all fell in July, for different reasons.

GM and Fiat Chrysler Automobiles posted double-digit declines, driven largely by sharp cuts in fleet sales. Ford Motor Co., off 7.4 percent, and American Honda, 1.2 percent lower, were hampered by shortages of key models.

Nissan North America and Korean brands Hyundai and Kia boosted incentives to clear inventory, but with different results. Hyundai brand sales tumbled 30 percent, while Kia and Nissan posted smaller losses that outperformed the industry average.

Nissan’s average incentive of $4,530, according to Autodata, was the highest among mainstream automakers, and Kia boosted its average spiff 42 percent to $3,865, helping Kia to outsell Hyundai for the third month in a row.

FCA US sales fell 10 percent after the company slashed fleet volume by more than a third. That’s in line with a company effort to cut volume to bulk buyers, especially car-rental companies. Jeep had the biggest fleet cutback, down 82 percent.

GM’s U.S. sales boss, Kurt McNeil, said the automaker would rather “strategically” cut production than boost incentives or “dump vehicles into daily rental fleets.” In July, it slashed car-rental fleet volume 81 percent to just 1 percent of GM sales. GM also trimmed incentives 5.7 percent to $4,304 per vehicle, according to Autodata. But GM sales fell 15 percent and it still has a 104-day supply of inventory, well above the industry average.

Ford Motor and Honda were hit by product shortages. Ford said its retail sales fell 1 percent but fleet volume plunged 26 percent, in part because a recall of 402,000 Transit vans delayed shipments. Honda said it couldn’t supply enough light trucks, although its car sales rose 2.7 percent.

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