Suddenly, a slowdown -- what gives?
Jittery consumers, political uncertainty threaten sales
 | Borst: “Still some economic skittishness” |
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After tracking well for so many months, the hugely promising 2012 sales recovery has leveled off -- and appears unlikely to regain momentum before year end.
What's the lowdown on the slowdown?
Pent-up demand and an aging used-vehicle fleet kept August new-vehicle sales afloat, executives and analysts say. But weak economic fundamentals have the market in a rut -- stuck at a 14 million annual pace.
"We're not seeing upward spikes," said Kelley Blue Book analyst Alec Gutierrez.
In an outbreak of cautiousness, three forecasters have cut sales outlooks for the year.
Consumer confidence is the missing element.
"People want a reason to commit to a new car, but there's still some economic skittishness," said George Borst, CEO of Toyota Financial Services.
Executives don't expect much traction until passing political roadblocks. The November election is first. Then massive tax hikes and federal spending cuts automatically kick in Jan. 1, unless a deadlocked Congress can agree on legislation to alter or prevent them.
Jim O'Sullivan, Mazda's top U.S. executive, says Europe's economic crisis and uncertainty about how Washington policymakers will navigate the fiscal cliff is weighing on consumers.
"Let's just say I'm guardedly optimistic about the back half" of the year, he said.
Forecasters put the August sales pace in line with the past five months. TrueCar.com sees the seasonally adjusted annual rate at 13.9 million, the same as in May. At the high end of five forecasts, LMC Automotive says 14.5 million.
The year started strong. January was the first 14 million SAAR since cash for clunkers and February's rate rose to 14.5 million.
Certainly, sales this year are substantially better than 2011's 12.8 million units and are on pace for a third straight year of improvement.
"It's being driven by lingering pent-up demand," said Gutierrez, who expects August's sales pace to hit 14.4 million. "But ... there's still a lot of uncertainty."
The election is a big reason for that, says Toyota Financial's Borst.
"Come November, there is going to be clarity in the direction the country is going to go," he said.
But TrueCar.com analyst Jesse Toprak said consumer and business uncertainty over Congress is an even bigger drag on sales than the presidential contest.
"Congressional performance affects everything," he said "The ability to lend, consumer comfort, business investment and hiring. It has an overarching effect on the economy and car sales."
The lame-duck Congress must try to avoid the fiscal cliff. At year end, the Bush-era tax cuts expire, which would raise federal income tax rates for most Americans. At the same time, massive cuts in federal defense and social programs would kick in.
The nonpartisan Congressional Budget Office says the combination of higher taxes and lower federal spending almost certainly would trigger a new recession.
Toprak now forecasts full-year U.S. light-vehicle sales at 14.3 million units, down from his earlier forecast of 14.5 million, and 2013 volume at 15.3 million, down from 15.5 million.
LMC this month lowered its 2012 forecast to 14.3 million units from 14.5 million units, citing higher economic-driven risk. Its 2013 forecast has moved to 15.0 million units from 15.2 million units.
LMC expects a healthy 14.5 million annual selling rate in August.
"The strength in August light-vehicle sales takes some of the pressure off expectations for the balance of the year, but a high level of risk lingers," said LMC's Jeff Schuster.
Morgan Stanley's Adam Jonas last month lowered his 2012 forecast to 14.4 million from 14.8 million.
KBB's Gutierrez sees annual auto sales stuck between 14 million and 15 million as long as the Conference Board Consumer Confidence Index remains "in the low 60s" and unemployment remains above 8 percent.
"We need consumer confidence numbers in the 80s and 6 percent unemployment to get [auto sales] to 15.5 to 16 million." he said.
Despite slow auto sales gains, automakers, suppliers and dealers are profitable and healthy at a 14 million level, Toprak said.
"It's a sustainable level," he said. "Banks can afford to lend, consumers can buy and auto companies can afford to reinvest in new products. But everybody's just frustrated."
You can reach Jesse Snyder at jsnyder@crain.com.
