Healthy combo: 17M sales rate and high transaction prices

A super SAAR and signs of a stellar second half

Healthy combo: 17M sales rate and high transaction prices

First-half highlight: Jeep's giant leap forward.
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Alan Mulally was still in the airplane business the last time the auto industry had a month as good as June.

Mulally's final month as Ford Motor Co.'s CEO marked the first time since the summer he arrived in Dearborn, Mich., eight years ago that the seasonally adjusted, annualized U.S. selling rate hit 17 million. It was also the fourth consecutive month in which the SAAR topped 16 million after a frigid, slow winter.

Halfway through 2014, automakers are on pace to post full-year sales totaling 16.22 million vehicles, the most since 2006. And they are doing so with record transaction prices, lower incentives and about 4,000 fewer retailers than the last time demand was this high, which means both the factory and the dealer are making considerably more money.

"It's a much healthier market today," said Jesse Toprak, chief analyst at Cars.com. "That's two months in a row that the industry surprised us, especially the last week of the month with a very strong retail performance. It shows us that the fundamentals are strong and consumer demand is strong."

Toprak said 2014, by his calculations, is likely to be the first year in which the average transaction price tops $30,000. At the same time, the average dealership's sales volume is 20 percent higher than in 2006 and 77 percent higher than during the recession of 2009, according to National Automobile Dealers Association data.

LMC Automotive and Toyota Motor Corp. both raised their forecasts for the year based on the strength of June sales, and Toprak said he expects to increase his own estimate from 16.1 million to as much as 16.3 million.

U.S. sales from January through June totaled 8.17 million. Since 2004, 50.4 percent of sales occurred in the first half of the year. If that trend holds, dealerships will deliver 8.05 million cars and trucks in the next six months.

Several analysts and automakers said the industry could be even stronger in the second half than in the first because of higher fleet sales, more lenient financing criteria and the arrival of new models.

"With consumer confidence now at a six-year high and near record-low financing options widely available, we see industrywide growth continuing to improve," Toyota brand General Manager Bill Fay said last week.

Adam Jonas, an analyst with Morgan Stanley, warned that easier credit could be helping sales now but may lead to problems in the years ahead. He called increasing use of six- and seven-year loans a "disturbing trend" that could cause consumers to wait longer between purchases. The average loan term was a record 66 months in the first quarter, according to Experian Automotive.

The longer loans encourage consumers to load up on options by reducing their monthly payment, Jonas wrote in a report to clients, "giving the image of improved mix when precisely the opposite is occurring. We think more attention should be paid to the risk of consumers being taken out of their normal trade cycle, creating a vacuum."

Still, Jonas said he expects the SAAR to reach 18 million during 2017, which would be among the highest rates ever for the industry.

Ford had a lackluster final month under Mulally, as its sales fell 6 percent. But June brought a 51st consecutive year-over-year gain for Chrysler Group and a 1 percent increase for General Motors, even as its list of recalls grew considerably longer.

GM recalled 11.9 million vehicles in the United States last month -- more than it ever had in an entire year before -- and Wall Street had expected sales to decline as a result.

"It really is no mystery at all," Gerald Meyers, the former CEO of American Motors, said in a statement from the University of Michigan, where he is a business professor.

"The vehicles are almost all of prior vintage. This is a marvelous opportunity for GM to contact these former, and mostly loyal, customers, reminding them that there is a new and better product available today."

As millions of customers begin streaming into dealerships for repairs under more than 50 recalls GM has issued this year, dealers are working not only to make the fixes quickly but also to persuade as many of them as possible to upgrade to new models.

"In terms of the size and magnitude of what General Motors has got going on, wow, that's a lot of people coming through your dealership -- a lot," said Jeff Carlson, owner of Glenwood Springs Ford in Colorado.

"If you do what you're supposed to do, which is sell people cars when they come in, that's a lot of opportunities to do business."

Carlson said Ford dealerships had a similar experience during the company's Firestone tire recall in 2000.

"People either came in and got free tires and were happy or bought a car," he said. "The consumer was not that overwrought about it."

But while salespeople are working the crowded service lanes at GM dealerships, Carlson said traffic in his showroom has been slow. Ford, with its sales down 2 percent on the year, joins American Honda, Volkswagen Group of America and Volvo as the only four automakers to post a decline in the first half of 2014.

Bradford Wernle contributed to this report.

First-half highlight: Jeep's giant leap forward
The No. 1 hands-down superstar sales performer in the 1st half of 2014? That's easy. Jeep. Here are some knockout numbers that tell the tale of Jeep's ginormous 1st half.

45% - Sales increase vs. 1st half of 2013
1.2 - Share gain in percentage points (industry's next biggest gain, 0.6 by Nissan)
103,397 - Increase in Jeep unit sales compared with 1st half of 2013
70,203 - Jeeps sold in May. The brand had never before topped 60,000 U.S. sales in a single month.

You can reach Nick Bunkley at nbunkley@crain.com. -- Follow Nick on Twitter


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