What to really look for in April’s auto sales – Fortune

Posted: Wednesday, April 30, 2014
car lot

To get the full auto sales picture, you need to read between the spaces.

On the first day of every month, automakers report how many cars and trucks they sold during the previous month. It’s data that in timeliness and detail is unparalleled in any other industry. Want to know how many iPhones Apple sold in April? You will have to wait until the company’s quarterly results appear in July. How many skinny Caramel Macchiatos did Starbucks move? You’ll have to guess because Starbucks won’t tell you.

While it’s good to have the sales numbers, it is equally important to know how to interpret them. The raw data requires experienced eyes to identify trends and spot inflection points. To paraphrase the old saying, there are lies, damn lies, and monthly auto sales.

It’s complicated. For one thing, reported sales numbers don’t represent final sales to retail customers but wholesale shipments to dealers. When newly assembled cars leave the factory, they are titled and become the property of a dealer, and the sale is counted. It will be several more months before a retail customer takes possession.

Manufacturers are experienced at gaming the numbers. One trick is to load unsold cars onto truck transporters and train carriers at month’s end, so the vehicles can be counted as sold. Years ago, Chrysler had a habit of parking newly built cars on empty lots around Detroit and then selling them to dealers in fire sales at discounted prices. The practice, known as the “sales bank,” nearly drove the company into insolvency in the late 1970s.

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Until the mid-’90s, sales were reported every 10 days, creating even more opportunities for gamesmanship. The last third of the month always saw a spike in sales. But once a month invites its own kind of sleight-of-hands. Here are some of the many ways to parse the monthly auto sales numbers:

Bulls vs. bears

For some analysts, the sales glass is always half full; others are typically less rosy. Take these divergent forecasts for April 2014:

At Kelley Blue Book, senior analyst Alec Gutierrez expects April “to continue with another solid month of sales, which will be supported by rising consumer confidence and improving employment conditions.” Bah humbug, says independent consultant Warren Browne, who admits to not being a “natural optimist” when it comes to predicting economic growth. Browne believes the recession left deep scars and “consequently, it will take exceptional luck to keep vehicle sales growing in 2015 — a small economic miracle, or the industry getting to crazy incentive levels.”

I’d side with Browne, since Kelley could be conflicted by its mission of helping shoppers buy cars.

Three-card monte

Sales wars are fought on three levels. First, there are gross sales that count every customer: government and corporate fleets, daily rental car fleets, and retail buyers. These results tend to favor domestic makers who have lots of fleet customers — sometimes as much as 40% of their volume. Import manufacturers that sell fewer fleet cars prefer to count retail sales only. But even though retail sales are a better measure of true demand, the numbers aren’t published industrywide and don’t get wide circulation. As a result, nobody can claim the award for most retail sales in a particular model.

Then there are sales adjusted for incentives, the so-called cash on the hood that automakers use to close deals. As in fleet sales, there is a whisper number as well as a published one, which allows a manufacturer to anonymously cast doubt on the sales results of a competitor. Honda (HMC), which eschews incentives, uncharacteristically went public a few days ago (without naming names) when it declared in its March sales report that Honda market share remained strong “despite heavy incentives from several major automakers.”

Classic duels

Sales analysts like to report on the progress of several head-to-head sales battles, which vary widely in their economic significance. One of the most popular is Toyota Camry vs. Honda Accord because the winner is usually the bestselling car overall, a title that carries considerable bragging rights. In narrower segments, Mustang vs. Camaro and Chevy Volt vs. Nissan Leaf have followers, though low volumes make the outcomes inconsequential. The battle between BMW and Mercedes-Benz for the honor of bestselling luxury brand is also widely followed, even though large sales numbers don’t correlate with premium exclusivity.

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The most closely watched contest in 2014 — and deservedly so — is between two trucks: Chevy Silverado and Ram. Chevy has long been the runner-up in truck sales (Ford’s (F, Fortune 500) F-series is way out front) but Ram passed it in March sales. At stake are the lushest variable profits in the business — up to $10,000 per truck.

Quote wars

For auto sales insiders, there is another two-way spat going on: Edmunds.com vs. Kelley Blue Book. They fight not over sales, but over who gets more analyst quotes into print. After Edmunds started providing prepackaged quotes to journalists a few years ago, Kelley began doing the same. Now the two battle each month in an effort to gain visibility for their car shopping websites. Most of their comments are to the point, though they sometimes lapse into tautologies along the lines of “falling sales are a sign of declining popularity” and “if their sales keep going down, they could be in trouble.”

U.S. vs. Japan

A popular stat that compares the market share of the old Big Three to the Japan Six went out of favor when Detroit’s share seemed to stabilize, and it became almost unpatriotic to point out the shortcomings of domestic producers. Now it may be time to revive it. As Warren Browne points out in his latest report, Detroit’s share has fallen 5.9 percentage points since the 2008-2009 financial crisis, and the Toyota (TM) brand may outsell General Motors’ (GM, Fortune 500) Chevrolet this year. If the domestics keep losing sales like that, they could be in real trouble. To top of page

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