Sales slip 1.7% despite higher discounts

U.S. light-vehicle sales dropped 1.7 percent in March as decreases at Ford, Honda, Toyota, FCA, Hyundai and Kia overshadowed gains at Nissan and General Motors, even amid higher spending on discounts.

The results suggest the auto industry -- despite strong truck demand -- is losing momentum heading into the key spring selling season after seven consecutive years of gains. The seasonally adjusted, annualized sales rate fell to 16.6 million, well below a forecast of 17.2 million and the lowest pace of sales since February 2015. The SAAR was 16.66 million in March 2016 and 17.57 million in February and January.

Overall, light-truck deliveries jumped 5.4 percent last month while car sales skidded 11 percent.

Before Monday's reports, U.S. light-vehicle sales for March were projected to rise to their highest level for the month since 2000, according to analysts’ forecasts.

After hitting a record high of 17.54 million in 2016, capped by a very strong December, U.S. auto sales have dropped 1.6 percent this year through March, even as automakers dangle fatter discounts.

A 3.2 percent increase at Nissan kept its 2017 winning streak alive, while GM climbed for a second consecutive month. Ford, Toyota, Fiat Chrysler, Hyundai and Kia are still seeking their first monthly gains of the year, while American Honda fell for the first time.

GM initially pegged March’s SAAR at 17 million but said later Monday it was tracking at 16.7 million based on results from other automakers, as well as lower than expected fleet shipments at GM and Ford.

"We believe strong car-buying fundamentals are reflected in the retail component of the light vehicle SAAR, which was 13.8 million in March, up 0.1 million versus a year ago," a GM spokesman said.

Nissan Motor Co. benefited from strong demand for crossovers, a double-digit increase in incentives and a big jump at Infiniti.

Volume edged up 0.5 percent at the Nissan brand and 33 percent at Infiniti. The automaker said car volume dropped 15 percent while truck sales surged 29 percent, with record truck volume of 77,258 at the Nissan brand.

ALG estimates Nissan’s average incentive on new vehicles rose to $4,074 last month, 18 percent higher than a year earlier.

At GM, sales edged up 1.6 percent on a 5 percent rise in retail sales and a 21 percent increase in incentive spending. (See chart below.) Volume rose 12 percent at GMC and 15 percent at Buick but slipped 2.2 percent at Chevrolet and 1.5 percent at Cadillac.

Sales dropped 7.2 percent at Ford Motor Co. The automaker recorded a 17 percent drop in fleet shipments, 24 percent plunge in car sales and a 1.5 percent dip in retail demand. Sales declined 7.4 percent at the Ford division and 1.4 percent at Lincoln, ending a seven-month streak of gains for the luxury brand.

Honda Motor Co. posted a slight decline in March as record truck demand failed to overcome weaker car volume and sharply lower Acura deliveries.

Sales at the Honda brand rose 1.8 percent but dropped 21 percent at Acura.

American Honda said its truck sales rose 8.4 percent, setting a March record at the Honda division -- 61,975, up 13 percent -- while car demand skidded 8.7 percent, with Accord deliveries dropping 12 percent and Civic volume down 4 percent.

At Fiat Chrysler Automobiles, sales declined 4.4 percent as demand fell for a seventh straight month. Jeep, which had been the automaker’s post-recession mainstay, was down 11 percent and hasn’t seen a sales gain since August. The Chrysler and Fiat brands were also down, while Dodge and Ram were up.

Toyota Motor Corp.’s 2.1 percent decline marked its smallest setback of the year. The Toyota division slipped 1.2 percent, while Lexus dropped 7.5 percent.

Hyundai's sales dropped 10 percent, its fourth consecutive decline, and Kia posted its third straight monthly decline, with volume off 15 percent.

Among other automakers, deliveries rose 11 percent at Subaru, the brand's 64th consecutive gain, 2.7 percent at Volkswagen, 4.9 percent at Mazda and 6.2 percent at Mitsubishi. It was the fourth straight monthly gain for the VW brand as it slowly rebounds from emissions violations that have sidelined U.S. sales of diesel models.

Cars over trucks

Automakers are being forced to raise deals on new cars as consumers continue to migrate to light trucks. Edmunds estimates average car incentives totaled $3,120 in March, up from $3,101 in February, while light truck discounts averaged $3,400 last month.

“A closer look at incentives, inventory levels and car sales illustrates the bi-polar nature of the current market," said Karl Brauer, executive publisher for Autotrader and Kelley Blue Book. "Incentives have risen across the board, even on the same truck and SUV models that used to sell themselves. Coupes, hatchbacks and sedans continue to struggle almost universally, setting up a sort of 'demand race' between falling cars and rising trucks/SUVs as the overall market teeters between growth and decline. With economic factors slowly improving and automakers pushing ever-larger incentives levers, this pattern could continue for the rest of 2017.”

Even with the March decline in Civic deliveries, volume reached nearly 32,000 and Honda said the compact car was the best-selling car in America on a retail basis in the first quarter of 2017.

"Many automakers are looking for signs of market stability as consumers continue to head toward trucks and SUVs," said Jeff Conrad, general manager of the Honda Division, in a statement. "But cars are still a compelling choice for many, especially when you have the right formula."

Amid the decline, consumers continue to migrate to crossovers and SUVs. J.D. Power says light trucks accounted for 61.5 percent of new-vehicle sales in the first two weeks of March. That would mark the highest level ever for the month and the ninth straight month that crossovers, SUVs, vans and pickups represented more than 60 percent of U.S. light-vehicle volume.

Ahead of today’s reports, volume was projected to rise 7 percent at General Motors, 4.9 percent at Honda, 2.8 percent at Nissan, 8.6 percent at Volkswagen/Audi and 0.4 percent at Fiat Chrysler, a survey of analysts by Bloomberg found. Deliveries were projected to drop 5.9 percent at Ford Motor, 1.2 percent at Toyota Motor and 3.8 percent ay Hyundai/Kia.

J.D. Power and LMC Automotive say per-vehicle incentive levels were on track to set a record for March at $3,768.

While favorable deals, low financing rates, attractive lease deals and a solid economy continue to support sales, rising interest rates and falling used-vehicle prices threaten growth in 2017 following seven straight years of expansion.

Edmunds says the average interest rate on a new-vehicle loan reached 5.02 percent in March -- the highest rate in seven years -- and up from 4.87 percent in February and 4.80 percent in March of 2016. The last time the average interest rate on a new-vehicle loan crossed the 5 percent mark was in February 2010, Edmunds said.

"The tide is turning for the auto industry," said Jessica Caldwell, head of industry analysis at Edmunds. "The training wheels that were put in place during the recession are coming off, and the industry is now being challenged to see if it can find the right balance."

Rising inventories

The average number of days a new vehicle sat on a dealer lot before being sold reached 70 in the first 19 days of March, J.D. Power says. That’s the highest level for any month since days-to-turn hit 80 in July 2009, during the Great Recession.

March was the ninth consecutive month in which new-vehicle incentives average at least 10 percent of average transaction prices, which hit a March high of $31,074, according to J.D. Power.

ALG estimates incentives rose 13 percent from March 2016 to $3,511 last month, with General Motors, Fiat Chrysler, Nissan and Ford being the top spenders. (See chart below.)

Among major automakers, the biggest rise, percentagewise, in incentives last month occurred at Subaru, Honda, GM and Nissan. BMW is the only one of the 12 largest automakers whose incentives declined last month from March 2016.

“Car manufacturers have capacitized to a 19 million or 20 million SAAR,” Morgan Stanley analyst Adam Jonas said in a report last week that forecast steep declines of 25 to 50 percent in used car prices over the next two years. “At this point in the cycle, we start seeing more money 'on the hood' to move the metal.”