Did February’s auto sales results seem familiar? Expected? Predictable? Pretty much like any other in the past 30 months?
Yeah, me too.
Sales were good -- remarkably good by historical standards -- with a seasonally adjusted, annualized selling rate of 17.57 million. Just a tad off a strong month last February. A SAAR that matched 2016’s actual record sales. And exactly the same SAAR as January, right down to two decimal places.
ALG analyst Eric Lyman pegged the feeling earlier Wednesday: “It’s a bit like Groundhog Day -- we’ve seen this before.”
Like Bill Murray’s character in the 1993 cult classic who awakes each morning reliving the previous day, the U.S. auto industry keeps experiencing deja vu month after month. Sales are always quite strong but almost identical, just a tad up or down from another strong month a year earlier.
It’s hardly an unpleasant experience -- we vividly remember truly horrible times not so long ago.
Coming out of the depths of the Great Recession, automakers generated big volume growth from almost anything they did as the economy rebounded. Innovative designs and new technologies were welcomed by consumers eager to buy again. Low interest rates and growing credit availability kept expanding the universe of people who could afford new vehicles.
After averaging more than a million incremental units annually from 2009 and 2014, U.S. auto sales growth slowed but set a record in 2015 and, barely, another high in 2016. Last year’s record wouldn’t have happened if automakers and dealers hadn’t learned from experience and refined their marketing efforts.
Murray’s character learned quickly to avoid deep potholes, but winning hearts took more effort and time. Similarly for auto marketers, for each new month, fresh improvements get harder to find.
But here’s the crux: Automakers are running out of levers they can pull to manipulate the sales environment.
Growth was easy back when there was deep, natural pent-up demand. When interest rates were falling, credit availability was expanding and leasing was rebounding. When the crossover was a novelty and a new segment that allowed premium pricing. When restored product development programs were delivering new models. When financial markets and job growth were rising and fuel prices were falling. When a shortage of late-model, used vehicles increased their value, making new cars relatively more attractive, leasing easier and increasing repeat buyers’ trade-in values.
But now most of those tailwinds have moderated and some have even modestly reversed direction. Pent-up demand is satisfied. Interest rates are still low, but inching higher. With auto loan delinquencies creeping up in the fourth quarter, it’s unlikely lenders will further loosen credit. Used-car values are declining, making leasing less attractive for manufacturers and lenders. Fuel prices are low, but unlikely to fall much further.
Suddenly, the primary marketing tools left for manufacturers are incentives.
Automakers have responded with record levels of spiffs, which Lyman estimated at 10.3 percent of average transaction prices across the industry in February.
The deals are keeping volume high, yet sales in the first two months are down 1.5 percent from the same period in 2016.
IHS Markit analyst Tom Libby said automakers will have to use innovative incentives, attractive financing terms and aggressive conquest programs to achieve sales growth this year.
He added: “We can expect more of this as the year progresses.”
