Lift your foot off the gas, you slow down.
That’s the simple explanation for March’s slower-than-expected U.S. auto sales: Manufacturers mostly stuck to existing incentive programs or focused on clearing out old stock.
That was good enough for lots of buyers, but enough U.S. consumers kept their hands in their pockets that volume sagged 1.7 percent from last March’s busy pace.
“March incentives were relatively in check,” said Michelle Krebs, executive analyst for Autotrader. “Manufacturers made fewer additions to incentive programs, few changes at month end, and some zero-percent offers to clear out [leftover] 2016s.”
In other words, automaker spiffs were less frenetic than in the past several months. Analysts saw incentives even more narrowly focused than usual, with offers on specific slow-movers such as sedans, hybrids and alternative-fuel models, and some regional spiffs to defend model market share in some markets.
As of late as last week, independent forecasters expected March sales to rise, but most factories didn’t jump in with new incentives at the end of March, so the month end fell flat.
That’s a stark reminder that the current market is driven more by big incentives than demand. As Krebs noted again today, “it takes more money and more effort” to move the metal.
Now, let’s keep this in perspective. After seven years of U.S. auto sales growth and coming off back-to-back record years, a first quarter that is within 64,000 vehicles of last year’s record is pretty darn good.
Actually, it’s spectacularly good considering the marketplace’s “bipolar nature,” as Karl Brauer of Kelley Blue Book calls it.
Anything sit-high -- pickups, SUVs, crossovers or minivans -- flies off the lots. But passenger cars -- you know, those sit-low sedans and hatches that until recently were a majority of U.S. auto sales -- can’t even draw flies.
In March, industry car sales fell another 11 percent while light trucks rose 5.4 percent. In the first quarter, cars captured just under 37 percent of all sales, losing 4.5 share points to sit-highs in the past 12 months.
“Cars haven’t bottomed out yet,” Krebs warns.
Beyond the collapse of the car segment, the new-car market has other challenges: rising interest rates, falling used-vehicle values and a mounting supply of late-model vehicles.
Manufacturers and dealers are coping fairly well so far with the massive consumer swing to light trucks. Automakers keep introducing more fresh crossover and SUV models to meet demand. And the industry keeps citing rising average transaction prices as a sign of market strength.
But there are small signs of stress. Nissan North America’s market share surge has largely come on big incentives. Ford Motor and Nissan led the industry’s March growth in regional spiffs to address local inventory issues, AIS Rebates noted.
The decline in used-vehicle values is inevitable and was expected as increasing numbers of leased vehicles return at the end of contracts. But ALG analyst Eric Lyman said today that used-vehicle values have fallen a bit more than anticipated in the past few weeks -- “something not captured in our forecasting models.”
The auto marketplace is still strong, but it bears watching. Especially how consumers react to the growing gap between new- and used-vehicle pricing. In recent years after the Great Recession, the relatively low number of late-model used cars returning to the market meant consumers returning to the marketplace got high trade-in prices, and it was easier for them to buy new vehicles.
But as trade-in values fall, it’s a bigger jump to a new vehicle and lower-priced used cars look more appealing to a buyer.
That means a new pinch for automakers, reliant on new-vehicle sales. But dealers are better positioned. They have both new and used vehicles. And many of them have beefed up their certified pre-owned operations, giving them three tiers of pricing to pitch to customers.
“I’d a lot rather be a dealer than a manufacturer” in this climate, Lyman said today. “Dealers are better off, especially since automakers carry the burden on incentives.”