U.S. auto sales were good in April. Up 4.6 percent is about what we expected, right?
Solid. Profitable. Gratifying. And yeah, a bit boring. Yet another month of just-fine-thanks.
After all that frantic double-digit growth we’ve had, it’s tempting to wake up and just relax while pondering a second cup of coffee before heading to work.
But we’d be better served taking a farmer’s view: Hey, a bonus dry day at harvest time. Let’s get the crop in before the weather turns.
Because as rare and wonderful as this sixth straight year of rising U.S. auto sales may be, the growth rate is slowing.
Everybody made money in the boom times. But as margins inevitably narrow, the most efficient operations are the ones that stay profitable. Over time in our capital-intensive industry, profitability determines the winners and losers.
Efficient automakers -- those that maintain lean manufacturing and research operations, low marketing costs and production near capacity -- earn the profits necessary to invest in infrastructure and more winning products.
So far in a year of slower growth, most everybody fits that description. With the industry up a modest 5.4 percent through April, Volkswagen Group of America is the only automaker in negative territory, and that’s because of two brands -- VW and Bentley. After a 3 percent gain in April, VW Group is just 0.3 percent from breakeven year to date.
And virtually everybody is holding something in reserve. TrueCar said U.S. average transaction prices rose 1.1 percent in April to $32,189, while industry incentives fell a half percent to 8.1 percent of ATPs.
“Average transaction prices keep creeping higher while incentives are holding steady at just over 8 percent, so automakers remain disciplined,” said Larry Dominique, executive vice president of TrueCar. He expects some automakers that are light on popular crossovers and SUVs to boost incentives at some point. “They’re holding back, but they’ll have to pick spots where they’ll fight.”
Dominique said the restraint that automakers have shown so far means they still have reserves to fight with.
If U.S. auto sales reach 17 million this year, a half-million units of growth, that’s not necessarily the top. Where sales will peak is anybody’s guess.
Dominique and TrueCar see the potential for small gains into 2016 and even 2017 based on U.S. population growth. Barclays expects sales to “plateau” the next several years in the 16.5 million to 17 million range.
Lingering at the top of the sales cycle is hardly a horrible fate. But it’s where the most efficient can flourish and separate themselves from the pack.