UPDATED: 8/19/14 3:47 pm ET - adds details
U.S. auto sales are approaching the highest levels that the market can sustainably support and could suffer long-term damage as automakers increasingly turn to subprime financing and seven-year loans to boost market share, the top sales executive at American Honda warned today.
John Mendel, executive vice president of sales for American Honda, said the decline in the company’s U.S. market share, from 9.7 percent a year ago to 9.1 percent for the first seven months of 2014, won’t prompt it to do “stupid things in the short-term that damage the person who bought yesterday.”
He said extended loan terms and other strategies being employed by competitors hurt resale values, customer loyalty and ultimately profits.
“It’s a very, very short-term tactic,” Mendel said, “especially in the subprime area, because you not only are pulling sales forward, you’re probably pulling people out of used cars into a new car that maybe they can’t afford.”
Mendel said the U.S. market began shifting last year and is now “near the top,” with sales on pace to reach at least 16.2 million units this year. He said annual sales of 16.5 million is “probably a good assumption” for automakers to use in their near-term planning.
His comments, perhaps the strongest warning from a top U.S. auto executive this year, echo concerns from several analysts as the U.S. industry’s seasonally adjusted, annualized selling rate neared 17 million in recent months.
“The U.S. auto cycle has clearly moved from a ‘need to buy,’ to an ‘I just want to buy’ type of consumer mindset,” Morgan Stanley analyst Adam Jonas wrote in a July 29 report. “There is a dark side to all this.”
Jonas recently estimated 130 percent of North American light-vehicle production capacity that was taken out in the most recent downturn will come back online by 2016 -- putting more pressure on industry sales, incentives and profits.
Mendel said Honda remains focused on retail sales, even if that means suffering a loss of overall U.S. market share as competitors ratchet up fleet deliveries in an improving economy.
“In addition to a heavy reliance on fleet sales to boost volumes, we are seeing some of our competitors adopt short-term tactics to stoke sales, like big jumps in subprime lending and 72-month terms. We have no desire to go there,” Mendel told reporters on a conference call today. “Our strategy is working. We’re doing what we need to do. We’re delivering great value to the customer.”
Through July, Honda’s U.S. sales are down 1 percent in an overall market that has expanded 5 percent.
The company says the drop in its U.S. sales also reflects the delayed launch of the redesigned Honda Fit hatchback and Acura TLX sport sedan. Both models were first scheduled to go on sale in the first half of 2014.
Meanwhile, American Honda’s incentive spending, including the Acura brand, is up 19 percent overall; At the Honda division, incentive spending has spiked 27 percent per unit, and 55 percent for the brand’s car lineup, according to Autodata.
Mendel said the higher incentives were primarily related to “affordability and price-point reasons,” including changes to make leases more attractive.
Honda said four of its nameplates were the top-selling vehicle in their segment, on a retail basis, in the first half of the year, just as they were in 2013.
Accord, CR-V gains
The Honda Accord is the year’s top car and the CR-V is the top utility vehicle, Honda said, citing its own analysis of U.S. new-vehicle registration data from IHS Automotive, which bought R.L. Polk & Co. last year.
In addition, Honda said the Civic leads in the compact-car segment and the Odyssey outsells all other minivans on a retail basis.
When fleet sales are included, the CR-V is the only one of the four models to be No. 1 in its segment.
U.S. sales of the Accord trailed the Toyota Camry by 37,262 units overall as of June 30, meaning at least 18 percent of Camry deliveries are to fleet buyers while 1.2 percent of Accords land in fleets. Sales of the Civic trailed by 7,257 units behind the Toyota Corolla in compacts, and the Odyssey ranked third in minivans, having been passed by the Dodge Grand Caravan and Chrysler Town & Country this year.
Overall, the CR-V led its top challenger, the Ford Escape, by fewer than 2,000 units as of June 30. But Honda said 99.5 percent of CR-V sales were to retail customers, putting it more than 27,000 units ahead of the Escape on that basis. That means about 17 percent of Escapes are landing in fleets.
The Escape was leading the CR-V at the halfway point in 2013, but Escape sales declined 2 percent in the first six months of this year while CR-V sales rose 6 percent.
per unit YTD