Despite the 3.5 percent decline in U.S. auto sales last month, the industry is still running ahead of last year’s record pace. But will it finish the full year strong enough to set a new volume record?
It’s like running the third leg of the mile relay with a lead over the team that holds the league record. My analogy’s dated because I ran this event in high school, before it became the 4x400-meter relay, going third in the lineup because that’s where teams hide “middle-distance” guys: too slow for sprints, can’t last a mile.
You inherited a lead when you took the baton and stretched it with a strong start. Then you heard the other runner starting to close the gap. You knew your job: give your anchor at least a bit of a lead. He’s fast, but their anchor’s a burner.
That’s where U.S. auto sales stand this year after eight months compared with the first two thirds of 2015, a year that ended with the highest volume in more than a century of counting: 17.5 million light vehicles. The third quarter is the third leg of the race.
A strong July put 2016 industry volume up 1.1 percent over 2015, or by about 110,000 units. The August swoon cut that margin in half. If September sales stumble again and the fourth quarter starts even, the chances of beating the 2015 record are daunting. The fourth quarter was 2015’s best leg, with 18 million-plus seasonally adjusted annualized sales rates in both October and November.
In an absolute sense, auto sales remain very strong. But the August results add to a growing narrative that 2015 sales were back-loaded, 2016’s are front-loaded, and this year will miss becoming a seventh-straight year of growth.
TrueCar analyst Eric Lyman still expects a net gain in volume for 2016. But his reasoning isn’t encouraging. He believes demand has peaked but automakers can’t react quickly enough to significantly reduce planned fourth-quarter production. He also expects auto marketers to keep ratcheting up incentives to move the iron rather than carry heavy inventories into 2017.
Mark Wakefield, head of the Americas automotive practice at AlixPartners, also is sticking with his forecast for a gain in 2016 deliveries. But noting the rise in incentives, growing fleet sales and stagnant retail volume, he’s increasingly pessimistic about next year.
“We’re falling quickly into the push phase of the game and out of pull,” Wakefield said Thursday.
Lyman sees higher consumer demand for new vehicles continuing because economic conditions remain strong.
But Wakefield said many of the positive economic factors and marketing trends that fueled steady growth over the past six-plus years are playing out.
“There’s not much juice left in extending more credit,” he said. “There’s still some benefit from strong new-home construction, but mostly [that means] just more pickups. We can still extend auto-loan terms,” but adding months to the average loan is losing appeal.
It’s fun to contemplate a new U.S. auto sales record. And I liked the relay race comparison.
But here’s where the analogy breaks down:
A new sales year starts every January 1. But in the U.S. car biz, the racing never stops. Not since the 1890s.
Every December, marketers dash toward an imaginary finish line. But break the tape and there’s just more track ahead. That sales crown? You won the latest lap in an endless marathon.
You may email Jesse Snyder at [email protected]