Rational Auto Theory

JD Power and LMC Automotive were expecting total new vehicle sales to rise 2.4% year-over-year in March, a small turnaround of sorts for the way auto sales have gone so far in 2017. Both new retail auto sales as well as overall sales were slightly negative January and February, so any positive number would be a welcome change. Given the importance of the motor vehicle sector in US and global industry as well as how it might reflect the state of consumers, those seeking “reflation” were counting on at least one “hard” number going their way.

Of the reported auto sales released today by the manufacturers, however, it doesn’t seem like consumers cooperated much last month. Ford Motor reported -7.2% sales, a little better than Edmunds.com and Kelley Blue Book forecasts. The highly negative sales were surely a result of Ford being far more cautious on incentives where other manufacturers were not. FCA (Fiat Chrysler) wasn’t quite as stingy as Ford but also nowhere near as aggressive as GM. Still, FCA sales were well below estimates, declining 4.6% in March compared to expectations for +2.7% from Edmunds.com and +2.8% for Kelley Blue Book. General Motors and their incentive strategy worked as far as keeping sales positive, but far, far less than anticipated: +1.6% actual; +9.6% Edmunds.com; +9.1% KBB.

Foreign automakers reported no better results overall, leaving the auto sales “plateau” seemingly intact. But it should not be lost in how these disappointing sales results for what was supposed to be a relatively good month were achieved, and the backdrop against which the incentive structure is currently being deployed:

“If you only look at the sales numbers, it could be tempting to say that the industry is just as strong as it was a year ago,” said Jessica Caldwell, Edmunds executive director of industry analysis. “But there are several areas of concern this year lurking just below the surface. Inventories have reached levels not seen in more than a decade, and incentives are rising. We’re also seeing an increase in loan terms and indications of a rise in subprime lending, which demonstrate sales aren’t coming as easily as they used to.” [emphasis added]

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Disclosure: This material has been distributed fo or informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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