May Auto Sales Bounce Back With Deals – Forbes

Posted: Friday, June 02, 2017

May auto sales were flat from a year ago and bounced back from April after automakers fattened up some deals to consumers, but kept the lid on sales to rental companies: Photographer: Daniel Acker/Bloomberg

Auto sales remained flat in May versus a year ago, a reversal of fortune from the last two months when sales declined. Investors liked the results in that light, especially because the bigger automakers are choosing not to flood rental car companies with cheaper models in order to prop up sales artificially.

Overall, May was a 7.5 percent improvement from April 2017, and a 0.3 percent increase from May 2016.

General Motors Chief Economist Mustafa Mohatarem said most car companies have been not been heavily discounting cars to rental fleets because the effect is to drive down the cost of those used cars when the rental agencies sell them, which in turn forces automakers to discount their new cars to compete with used car values. It has always been a vicious cycle that they intend to avoid.

The exception to the rule this month was Ford, which outsold General Motors, by driving 34% of its May sales to fleet sales, compared with an industry average of 20%.

That’s not to say there aren’t some great deals to be had at the dealership for consumers. GM has been offering up to $12,000 on its Silverado pickup truck, as Ford was offering $10,000 on its F-Series pickups and $14,000 on its leftover 2016 models. Hyundai has been offering an unheard of $6,750 cash back on its mid-sized Sonata sedan. Jeep Renegade has a $3,500 rebate.The average incentive per vehicle industry wide is currently around $3,500, which is historically pretty high.

One of the key metrics Wall Street is looking at is day’s supply of cars. Ford has an inventory of unsold cars of 59 days, a very respectable number for a company with the product portfolio of Ford. GM has a much bigger day’s supply of cars at 101 days, but the company explained that it was build up inventory of its profitable pickup trucks as it gets ready to change the factory over for a new design. In some parts of the country, Ford is offering $7,750 on the F150 pickup. The Ford C-Max is giving up $6,000.

Automakers are getting ready for a downturn in sales most analytical firms are predicting. LMC Automotive forecasts 17.2 million new vehicles sold this year, compared with 17.55 million last year. Some estimates have new vehicle sales falling below 16 million in the next three years.

Most other car companies reported sales flat, a little bit up or a little bit down. Fiat Chrysler sales fell 0.9%. Honda Motor Co’ sales were up 0.9%. Nissan sales budged up 3.0% and Toyota dropped 0.5%. One of the exceptions is Subaru of America, which remains on a ales tear, posting sales up 12.1% from a year ago, helped in part by brisk sales of its all-new Impreza. The company said it was the best May in its history.

Sales of some luxury brands were off quite a bit. BMW sales were down 11%, while its MINI brand was also off 11%, though Audi managed a sales gain of 2.5%, and jaguar was up 44%.  Mercedes-Benz was off 6.8%. GM’s Cadillac brand was up 9.%. Volkswagen was up 4.3% from a year ago. Lexus was down 4.8%.

Most analysts attribute the falloff in overall sales and turning to consumer incentives to move new vehicles to a normal adjustment. Tom Libby, with IHS Markit, notes that key economic fundamentals such as unemployment, unemployment,  consumer confidence, gas prices and interest rates all look good, sales still will fall this year because pent-up demand for new cars has been largely met in the last three years, and people are simply planning on  and many people have decided to keep their automobiles longer.

The stock market reacted well to the bounce-back and lack of aggressive sales to rental fleets. Ford shares were up 2.61% and GM shares ticked up 1.3% before giving back a bit of that in after hours trading.

David Kiley covers the global auto industry for and Automobile Magazine. He is co-author of the 2015 book: Writing The War: Chronicles of a WWII Correspondent. Prometheus Books.


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