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April 12, 2016 02:00 AM

Slow March raises concerns on light vehicle volume

Automotive News Report
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    A slowdown in light vehicle sales for March have some industry experts worried.

    DETROIT—U.S. light-vehicle volume is running ahead of last year's record pace, but an unanticipated late March slowdown triggered fresh concern that sales have peaked.

    March sales of nearly 1.56 vehicles was 3.1 percent higher than the same month in 2015. But with two more selling days this March than last March, the seasonally adjusted annual selling rate was 16.6 million. That's down from 17.1 million last March and February's 17.5 million and well below analysts' expectations for an 11th consecutive monthly SAAR above 17 million.

    After six consecutive years of strong U.S. auto sales growth—the longest such string since the 1920s—automakers, suppliers, dealers and Wall Street are looking for signs that the gravy train is coming to an end.

    “The industry sees headwinds on the horizon,” TrueCar Analyst Eric Lyman said. He expects auto sales to grow another 3 percent this year but notes mounting concern that the factors that have promoted growth since 2009—consumer demand, credit availability, attractive new products, economic expansion—are playing out.

    Autotrader analyst Michelle Krebs agrees. “Automakers are being forced to pull additional levers to sustain those sales, like selling more cars to fleets, enriching incentives and using leasing and extended term loans,” she said.

    Industry incentives rose 10 percent in March to $3,005 per vehicle, TrueCar estimates, or about 9.1 percent of average transaction prices. Lyman said automakers have “pulled back” the ratio from almost 10 percent in the fall of 2015, which he said shows collective marketing resolve.

    “But the real test will come at the end of the summer selling season,” Lyman said, citing a confluence of traditional year-end incentives, rising interest rates “and the inflection point of a swing from excess demand to a supply surplus of late-model used vehicles.”

    For the top seven automakers, fleet sales grew far faster than retail in March, as they have for the first quarter, the Automotive News Data Center said. March fleet volume jumped 13 percent and is 14 percent higher in the first three months, compared with retail gains of 2.5 percent in March and 2 percent so far in 2016.

    Barclays Analyst Brian Johnson cited a “soft retail environment,” noting that the selling rate for auto dealers has been below trend three of the last five months.

    “For all the noise about risks to U.S. auto volumes from financing and residuals, we believe the real risk lies around the retail environment,” he said in a note to investors.

    But there were other soft spots in March sales.

    Car sales fell 6.6 percent to less than 42 percent of the sales mix while light trucks—pickups, SUVs, vans and crossovers—jumped 12 percent. Johnson called it a continuing “tale of two segments: cars weak, SUVs and pickups strong.”

    Luxury sales declined 0.3 percent, with the three leading brands all in negative territory. Lexus emerged as March's top luxury brand, but only because its 2.8 percent decline was less than No. 2 BMW's loss of 13 percent and Mercedes-Benz's 5.9 percent drop. Through the first quarter, the segment is down 1 percent with six of the top seven brands falling.

    Volkswagen brand continues to bleed sales after its diesel emissions cheating scandal. Sales fell 10 percent in March and 13 percent in the first three months.

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