Expectations For U.S. Car Sales Still Point To Lower Year.
But Many Components Show Industry In Decent Shape.
The U.S. car market continues to defy gravity thanks to the popularity of SUVs and extra cash from tax cuts, and May’s results pointed to a probably lower but better than expected year for sales.
Worries that the rapid increase in SUVs and pickup trucks and increasing competition might start hurting profit margins can be offset by more personalisation and niche marketing.
Actual sales rose 4.7 per cent to 1.59 million in May compared with the same month last year, but the 16.91 annual rate was the lowest since August, according to Automotive News. In 2017, sales were 17.2 million
Barclays Equity Research said that at the start of the year, consensus was for a modest decline, down between 1 and 2 per cent to between 16.8 and 16.9 million, as many signs of late cycle behaviour was noticeable, like more incentives, used pricing weakness and rising interest rates. But sales have kept up while mix and used car pricing were strong.
“Moreover, mix remains positive and used car pricing has been robust. While the sustainability of this strength is a fair question, to the extent it continues it would imply upside to estimates,” Barclays’ analyst Brian Johnson said.
Johnson said because of the massive switch from saloon cars to SUVs there was a danger that pricing pressure would increase as the market was saturated, and it became more difficult to make models appear different.
“One way for (manufacturers) to avoid margin compression in the segment is to pursue a strategy of product differentiation, with entries in more profitable niche segments, such as off-road and performance. We believe FCA is best positioned with niche CUVs like the Wrangler,” Johnson said.
According to J.D.Power, there was a richer mix of SUVs and trucks in May which raised the average transaction price by nearly $1,200, while discounts remained flat at about $3,665 per vehicle.
Investment research Jefferies estimated incentives at a slightly higher $3,740, but said the industry remains disciplined on incentives. It forecasted sales for the year will be 0.5 per cent lower, compared with IHS Auto’s projection of a 1.8 per cent fall.
Investment researcher Evercore ISI said the market was robust in May, but even though sales dipped below an annual rate of 17 million in the month for the first time this year, sales have been slightly stronger than expectations.
“Whether this better than expected result translates into the second half remains to be seen. Nevertheless, the market is holding at its currently high level, and anecdotally appears healthy,” Evercore ISI analyst Arndt Ellinghorst said.
IHS Auto pronounced the market in good shape too.
“From a macroeconomic standpoint, consumer spending growth is being underpinned by lower personal tax rates and gains in employment, real disposable incomes, and home values. The IHS Markit full-year projection for 2018 remains at 16.9 million units,” said IHS analyst Peter Nagle.