Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

More Hurricane Effects Wear Off; Auto Sales Slump In January

Published 02/04/2018, 04:39 AM
Updated 05/14/2017, 06:45 AM

The storm-assisted car-fest that ended last year appears to be fully winding down. Automakers overall posted weak sales to start 2018. They are putting on their best face, admitting widely that this year was going to be a tough one anyway as if they expected it.

According to the Bureau of Economic Analysis, total sales (seasonally-adjusted) in January 2018 were 17.1 million, down from 17.8 million in December. It was in September and October where car sales picked up dramatically from mid-year when a clear downward trend had developed. The issue for this year is how much of an effect Harvey and Irma had, and whether it will be more than temporary given the inventory situation.

Motor Vehicle Sales

Estimates according to JD Power/LMC as well as those from AutoTrader are not encouraging. Both are heading quickly back to more middle 2017 levels than those picked up in late year.

JD Power And LMC

JD Power And LMC

The growth trend ended in mid- to late-2015, an inarguable macro-related inflection. It was and is a surprise to economists, including those working at the automakers (who keep saying things like “robust job market”). To the BLS, of course, the clear and persistent slowdown in the labor market offers instead an economic explanation far more consistent with these hard(er) figures.

JD Power And LMC Automotive Vehicle Sales

JD Power And LMC Automotive Vehicle Sales

The problem now for the manufacturers is incentives. Each of them has produced heavier and heavier programs just to keep sales from falling further. That has an impact on profitability, a factor that is taking on paramount importance particularly at domestic carmakers.

“In the face of very high consumer confidence, low interest rates, low gas prices, longer and longer loan terms, we’re still seeing the pedal through the floorboards on incentives,” said Mark Wakefield, head of the auto practice at consultant AlixPartners. “You’re training consumers to look for the deal.”

That’s one way to look at, the one where the unemployment rate describes the economy for you. Another and again more consistent way is to understand that all the rest of the labor market data is the reason “high consumer confidence, low interest rates, low gas prices” aren’t enough for automakers to be able to reduce incentives. There is no boom, at least not for American workers.

Customers haven’t been “trained” to look for huge deals on new stock, without the incentives they won’t pull the trigger. For the same reasons we see available-for-sale housing inventory steadily decline, consumers particularly at the lower ends of the income table are for more uncertain about the economic climate and therefore their future in it. Give them the deal of a lifetime, or forget about it. Even those who are given the opportunity are refusing, which is the prior downtrend to the middle of last year. If we go back to that trend, then it’s bad news all around.

That’s one reason why car sales as opposed to those of SUV’s and pickups have crashed. At the lower ends (cars are much cheaper relative to light trucks), there isn’t a whole lot of demand going back to around late 2014 – exactly the time housing inventory began to fall off. Increasingly concerned about work, at widening margins Americans don’t want to add new payments whether in a new car or because moving to a bigger and more expensive house (with its higher mortgage payment despite, too, “low interest rates”).

Motor Vehicle Sales

NAR Inventory Of Homes For Sale NSA

Sales at General Motors Company (NYSE:GM) rose just 1.3% year-over-year, fell 6.3% for Ford Motor Company (NYSE:F), and declined 13% at FCA (the seventeenth consecutive month of declines). Toyota's (NYSE:TM) overall sales rose 17% on the strength of a redesigned Camry gambling on increased market share for the Japanese manufacturer in a declining car market, while falling 1.7% for Honda (NYSE:HMC). Nissan (T:7201) achieved a rise of 10% and Hyundai-Kia sales fell 6.4%.

If dealers can’t clear any additional inventory than what Harvey and Irma were able to, which is what incentive payments to customers are supposed to be for, then production has to be further adjusted. It would add yet another headwind to this boom that has yet to boom.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.