March sales were even better than they looked

Fay: Counting on momentum
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How about that March surge in U.S. light-vehicle sales? Well, it was even better than it looked.

That's because the 6 percent gain compared with March 2013 all came at the last minute and was all retail, which means these are satisfying times for most dealers.

Retail sales rose 7 percent to overcome a 1 percent decline in fleet volume. And after starting almost as cold as January and February, March's sales pace accelerated in the final two weeks to finish at a seasonally adjusted annual selling rate of 16.4 million, the second highest monthly SAAR since 2007.

Analyst Richard Kwas of Wells Fargo sees potential for SAARs of 17 million or higher in April, May and June.

"The industry needs to see continued momentum," he said. "But March represents a good start to the spring selling season."

Bill Fay, general manager of Toyota Division, said he expects April to build on the momentum of the last two weeks of March.

"We're looking to capture delayed purchases from the last couple of months," he said.

A lot was riding on the March outcome. U.S. light-vehicle sales were off 1 percent the first two months after unusually harsh weather. The slow start raised concerns about excess stock and whether the recovery itself was faltering after four years of growth.

But March's 1.5 million units pulled the year to date into positive territory, driving the first-quarter SAAR to 15.7 million, higher than 2013's 15.6 million actual sales.

Factory incentives rose 8 percent to $2,773 per vehicle in March, but average transaction prices increased by $380 to $30,986, said Larry Dominique, executive vice president of TrueCar.com.

"Transaction prices are rising, so dealers are still maintaining their margins despite the higher volume," he said. "That's a good balance."

Analyst Alec Gutierrez of Kelley Blue Book believes the higher March incentives were a reasonable short-term response to work off the weather-related bulge in inventories.

Automakers had a 76-day supply of unsold vehicles March 1, about 10 percent higher than industry average for that date.

"There is a risk of pricing pressure in mid-sized cars" and other competitive segments the rest of the year, Gutierrez said.

But after March, he is more comfortable about the industry reaching Kelley Blue Book's full-year forecast of 16.3 million. In mid-March, Kelley was considering a downward revision if sales didn't pick up.

Similarly, March restored Dominique's confidence in TrueCar's 16.1 million forecast for the full year. "But I'm concerned about what kind of incentives it would take for the industry to get much more than that above 16 million."

Any 2014 sales growth must come on the retail side. Daily rental fleet buyers are keeping vehicles longer and strategically reducing replacement purchases.

Even including commercial and government segments, first-quarter fleet sales fell 6 percent to 640,789 units, according to industry sources. That's just 17.1 percent of total volume.

The Hyundai brand was the only one among the six players that control 95 percent of U.S. fleet activity not to reduce its reliance on fleet. Its fleet sales jumped 24 percent in the first quarter, partially offsetting an 8 percent retail loss.

By contrast, the Detroit 3, Toyota Motor Sales and Nissan North America all reduced fleet as a percentage of their sales mix in the first quarter.

Not everybody shared in March's surge. Among the eight largest-selling automakers, only two outperformed the market. Chrysler Group jumped 13 percent overall, riding best-ever sales months from Jeep and Fiat brands. Nissan North America rose 8 percent as the Nissan brand posted a record U.S. sales month.

American Honda lost sales in March, slipping 2 percent. That was enough for Nissan to move past it to take the No. 5 sales ranking for the month.

Five others increased sales, but less than the overall market. Toyota Motor Sales rose 5 percent; General Motors and Hyundai-Kia Automotive were up 4 percent; and Ford Motor, 3 percent.

Volkswagen Group of America gained 1 percent overall as strong performances at Audi and Porsche offset a 3 percent decline for the VW brand.

But GM sales boss Kurt McNeil was upbeat.

"GM's retail sales, like the weather and the economy, have been on an improving trend since early February," he said. "We expect to see solid economic growth in the months ahead."

Mark Rechtin contributed to this report.

You can reach Jesse Snyder at jsnyder@crain.com.


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