U.S. light-vehicle sales, hurt by a slump in car demand, slipped 1.1 percent in February as higher incentives and Presidents’ Day promotions failed to help the industry rebound from a decline in January volume.
But the seasonally adjusted annual sales remained strong at 17.57 million, in line with forecasts and on par with the record pace of 2016, leaving some automakers optimistic heading into the spring selling season.
“Industry sales in February topped a 17 million unit pace for the eighth straight month,” said Bill Fay, group vice president and general manager of the Toyota division.
Yet some analysts believe the market has reached a turning point because of rising incentives and inventories, especially on the car side, where industry sales continue to fall. Car sales skidded 13 percent last month while light truck deliveries advanced 7 percent.
“Today’s retail and wholesale environments are considerably different from what they were several years ago,” said Tom Libby, head of automotive industry analysis at IHS Markit. “Dealers and manufacturers now need to use more tactics such as aggressive conquest programs, cash incentives and attractive financing terms to achieve year-over-year sales increases, and we can expect more of this as the year progresses.”
Who’s up, down
GM sales rose 4.2 percent and Nissan climbed 3.7 percent. American Honda also posted a 2.3 percent gain, led by a 15 percent boost in trucks, crossovers and SUVs. Mazda was up as well, while Audi was among several brands with double-digit gains.
Ford, meanwhile, recorded its fourth decline in the last six months. A 10 percent drop at Fiat Chrysler marked its sixth straight monthly setback. Sales also slipped 7.2 percent at Toyota Motor behind a 5.4 percent dip at the Toyota brand and a 21 percent decline at Lexus. Overall, Toyota Motor said combined Toyota and Lexus car demand slipped 17 percent last month.
GM’s February increase reflected gains of 3.4 percent at Chevrolet and 17 percent at GMC. Sales slipped 9.4 percent at Buick and 8.6 percent at Cadillac. GM said its retail deliveries rose 5 percent as the company dials back on fleet shipments for the third year in a row.
Nissan saw deliveries edge up 1.2 percent at the Nissan brand and soar 33 percent at Infiniti. Nissan said sales of crossovers, pickups and SUVs set a February record of 61,870, a gain of 22 percent.
Ford Motor recorded a 4 percent decline in February, with higher light-truck volume failing to overcome a steep drop in car deliveries. Volume dropped 4.5 percent at the Ford division but rose 8.8 percent at Lincoln. Ford said its car sales slipped 24 percent, while demand rose 5.8 percent for SUVs and 3.9 percent for pickups.
FCA recorded a 10 percent drop as a 4 percent gain at Ram was overrun by a 15 percent drop at Jeep, a 28 percent plunge at the Chrysler brand and a 7 percent decline at Dodge.
Volkswagen sales rose 13 percent, the fourth straight monthly gain as the brand slowly recovers from emissions violations that have curbed diesel sales.
Audi set a February high mark for U.S. sales, with volume rising 17 percent to 13,741 behind strong truck demand. It was the luxury brand’s 74th straight monthly record.
Among other luxury brands, volume rose 0.3 percent at BMW, 2.1 percent at Porsche, 7.2 percent at Mercedes and 130 percent at Jaguar. Sales dropped 10 percent at Land Rover and 12 percent at Volvo.
Subaru set another February record with deliveries of 45,500, for a gain of 8.3 percent, and the brand’s 63rd straight month of year over year gains. Sales fell 14 percent at Kia, but rose 5.9 percent at Mazda and 39 percent at Mitsubishi.
It was a dismal month for car sales across the board, with combined sedan and coupe volume down more than 21 percent at each of the Detroit 3, 17 percent at Toyota Motor, 12 percent at Nissan and 11 percent at Hyundai-Kia, as U.S. consumers continue to embrace light trucks, notably crossovers. At American Honda, car deliveries slid 7.1 percent.
After U.S. sales rose 3 percent to a record 1.688 million in December, deliveries slipped 1.9 percent in January. The results for February — traditionally one of the weakest months for volume — keep the industry on par with the record-setting sales of 17.55 million in 2016. Year-to-date sales are off 1.5 percent through February.
Forecasters differ on whether the industry has the momentum to post a third consecutive year of record sales.
While sales are being supported by attractive finance rates and lease deals, low gasoline prices, employment gains and rising U.S. equity markets, analysts worry growing inventories will require automakers to juice incentives in coming months to keep volume stable.
Forecasts for higher interest rates and growing used vehicles stockpiles could also put downward pressure on new-vehicle demand, some analysts believe.
“Inventory is starting to swell, which is concerning considering that we’re still months away from the peak summer selling season. Days to turn has reached its highest level since July of 2009, and new vehicle inventory was up 9 percent year-over-year in February,” said Jessica Caldwell, an analyst with Edmunds. “The automakers are in a tricky spot: aggressive incentives are already starting to eat into profits and residuals, but it takes discipline to pull back the production reins in what’s still a fairly strong market.”
A buildup in used-car inventory, driven by a glut of off-lease vehicles returning to market, could have a negative impact on new-car sales this year, said Tom Kontos, chief economist for the ADESA auction group.
Kontos said auction volumes rose between five and six percent in 2016. Should auctions in 2017 see similar growth, used pricing could fall by roughly 3 percent this year, he said.
That could dampen the strength of the new-car market, Kontos said.
“If it hurts used car values, it hurts the ability of people to trade a car in and have equity on a new car. It probably affects the estimate people make on residual values, so they can’t support the back end as much. So the payment on a new lease would be higher all things being equal,” Kontos said. “It’s not helpful to the new car business. But it’s sort of the price you pay for selling 17 million cars and 30 percent of them are going as leases.”
Autotrader and Kelley Blue Book forecast sales in the range of 16.8 million to 17.3 million vehicles in 2017. That would represent a 1 percent to 4 percent decrease from 2016’s 17.54 million. Edmunds is within those expectations, with a projection of 17.2 million.
LMC Automotive is among the more optimistic, estimating sales of 17.6 million for the year. That would mark a 0.1 percent increase over last year and the third consecutive year of record sales.
“After an overheated close to 2016 and the increased likelihood of deregulation and fiscal stimulus from the Trump administration driving the economy higher, we now expect 2017 to be another record year in U.S. auto sales, though there is a lot of runway before the year is complete,” said LMC Automotive Jeff Schuster, senior vice president of forecasting.
How automakers react to plateauing sales is drawing more scrutiny from analysts as incentive spending continues to edge higher.
ALG says incentive spending by automakers averaged $3,443 per vehicle in February, up 14 percent from a year ago, and down 0.8 percent from January 2017.
General Motors, BMW and Daimler — all at nearly $4,500, on average, per vehicle — were among the top incentive spenders, according to ALG. Ford, Fiat Chrysler and Nissan spent about $4,000 or more per vehicle last month, ALG estimates.
Subaru had the lowest incentive spending, but the largest increase, compared with a year ago. ALG forecasts the Japanese brand’s spending increased 61 percent to $896 per vehicle.
Average transaction prices also are rising, but J.D. Power says incentives accounted for more than 10 percent of transaction prices for the first time in any February since the auto market hit bottom in February 2009 during the Great Recession.
Kelley Blue Book estimates the average transaction price for new light vehicles in the U.S. was $34,352 in February 2017, an increase of 2.3 percent, or $757, from February 2016, but down 0.9 percent, or $328, from January.
John Irwin and David Phillips contributed to this report