U.S. sales fall 4.7% in April as car slump drags on

U.S. light-vehicle sales dropped 4.7 percent last month as the biggest automakers posted declines and ever-rising incentives failed to shake the industry from its longest slump in years.

April marked the fourth consecutive monthly setback for U.S. sales and extended the longest losing streak since the market bottomed out in 2009. Car deliveries were down again, off 11 percent, while truck volume dipped 0.1 percent. It was the first time monthly light-truck deliveries dropped year over year since Sept. 2013.

The seasonally adjusted annual sales rate came in at 16.92 million, below forecasts of 17.1 million. Yet automakers remain optimistic even with sales now off 2.4 percent for the year and momentum falling during the key spring selling season.

“When you look at the broader economy, including a strong job market, rising wages, low inflation and low interest rates, and couple them to low fuel prices and strong consumer confidence, you have everything you need for auto sales to weather headwinds and remain at or near historic highs,” Mustafa Mohatarem, GM’s chief economist, said in a statement.

Ford Motor Co. and American Honda fell about 7 percent. General Motors recorded its first dip since January amid a continuing retreat from lower-profit fleet sales. Nissan Motor Co., which has embraced a volume-boosting fleet strategy, ended a five-month winning streak. Toyota Motor Corp. volume fell for a fourth straight month. Fiat Chrysler, also backing off fleet sales, hasn’t seen a sales gain since August.

Overall, analysts expected U.S. light-vehicle deliveries to drop as much as 4 percent. There was one fewer selling day last month than in April 2016.

U.S. volume had slipped 1.6 percent through the first quarter as strong demand for crossovers and other light trucks failed to offset soft car sales. The SAAR fell to 16.6 million in March, the lowest pace since February 2015.

Automaker by automaker

April demand at GM slipped 5.8 percent behind a 10 percent decline at Chevrolet and 0.3 percent dip at GMC. Volume rose 17 percent at Buick and 9.5 percent at Cadillac. GM said its car sales declined 13 percent in April.

Ford's sales dropped 7.1 percent, with the Ford brand falling 7.4 percent and Lincoln down 0.9 percent. It was the fourth straight monthly decline for Ford. The company said car deliveries slumped 21 percent, while SUV deliveries edged up 1.2 percent and pickup demand slid 4.2 percent.

At Toyota, volume slipped 4.4 percent last month, with the Toyota brand down 3.5 percent and Lexus off 11 percent. Toyota said its car deliveries slipped 12 percent.

U.S. sales of passenger cars are on track to decline for the fourth straight year in 2017 as low gasoline prices and improved fuel economy encourage more consumers to consider crossovers and SUVs.

“The industry’s appetite for SUV and light-truck sales remains strong,” said Jack Hollis, general manager of the Toyota division.

Nissan, in posting its first monthly decline since October, said volume dipped 2 percent at the Nissan brand but rose 3.5 percent at Infiniti. Overall, combined deliveries of passenger car models at Nissan and Infiniti declined 12 percent.

FCA US sales fell 6.6 percent, their eighth straight month of decline. All of its brands were down, with the exception of Ram (up 5.3 percent) and low-volume Alfa Romeo, which sold 677 vehicles. Dodge decreased 2.6 percent, Chrysler 3.3 percent, Jeep 17 percent and Fiat 18 percent.

At Honda, deliveries slid 7 percent behind a drop of 6.3 percent at the Honda division and 13 percent at Acura.

Volume slipped 0.9 percent at Hyundai and 5.6 percent at Kia.

The Volkswagen brand bucked the industry’s downward trend, posting a 1.6 percent increase in volume, its sixth consecutive gain. Sales also rose 3.9 percent last month at Subaru, keeping the company on pace to set a ninth straight annual record for U.S. volume. But April deliveries slipped 13 percent at Mitsubishi and 7.8 percent at Mazda.

Among other luxury brands, April volume rose at Audi, Jaguar, Land Rover and Volvo but dropped at BMW and Mercedes-Benz.

“Over the past six months we’ve watched nearly every automaker go from positive to negative sales volume, confirming the plateau in this latest sales cycle. The last time we moved into negative territory it was part of an overall economic downturn that was accompanied by massive disruption across the auto industry," said Karl Brauer, an analyst for Autotrader and Kelley Blue Book. "This transition should be much smoother, with ongoing near-record sales supported by strong economic indicators. The big shift this time, however, is the rapid drop in sedan sales as SUVs stake their claim as the hot ticket. Automakers will continue shifting resources to accommodate this new buying trend in the coming years, which in and of itself could prove disruptive.”

Slow 2016 selldown

Multiple brands -- Chevrolet, Mitsubishi, Jeep, GMC, Porsche, VW, Cadillac, Acura, Fiat, Buick and Alfa Romeo -- started April with U.S. inventories that topped 90 days or more, well above the 60-day level considered optimal.

“We’re seeing a dramatic lag in the 2016 model-year selldown," said Jessica Caldwell, executive director of industry analysis at Edmunds. "In April, 8 percent of vehicles sold were 2016 models, up from only 3 percent five years ago. Inventory buildup is a top concern of automakers and all eyes are on whether cuts in production are enough to offset expected dips in sales.”

With inventories growing and retail demand slipping, automakers and dealers are getting more aggressive with discounting -- notably on cars.

General Motors and Fiat Chrysler were among the biggest spenders on incentives last month, according to ALG. (See chart below.)

In the first two weeks of April, incentives averaged $3,499 per new-vehicle, a record for the month, and surpassing the previous high for the month -- $3,393 -- in April 2009, J.D. Power says.

Incentive spending for the average new vehicle this year through April was $3,814, up $460 from a year ago. On pickups, crossovers and SUVs, discounts averaged $3,740, up $578, while on cars, incentive spending was $3,938, up $308, J.D. Power says.

Analysts say incentive spending as a percentage of average transaction prices remained above 10 percent in April, higher than the typical 7.5 to 9.5 percent range the industry has experienced over the past seven years.

“Declining retail demand, the increased use of incentives, and a less favorable lending environment will likely limit the growth prospects for auto sales going forward," S&P Global credit analyst Nishit Madlani said in a report last month. “The increasing use of incentives, especially in the midsize car segment, and softer retail demand will likely lead to significantly elevated pricing pressure for automakers over the next 12-18 months.”

Transaction prices

Even as discounts rise, automakers have remained profitable because of rising transaction prices, especially on popular crossovers, SUVs and pickups. But in some light-truck segments, consumer demand in easing and pressure is building, analysts say, forcing prices down.

Kelley Blue Book estimates the average U.S. transaction price for light vehicles was $34,552 in April 2017, an increase of $579, or 1.7 percent, from April 2016, while falling $48, or 0.1 percent, from March.

“While new vehicle sales appear to be on the decline, most manufacturers are seeing higher retail transaction prices, with the industry average on new-car prices up for the month by nearly 2 percent,” Kelley Blue Book analyst Tim Fleming said. “These increases appear to be primarily driven by the shift in demand toward SUVs, even with growing segments, such as subcompact SUVs and luxury compact SUVs, seeing year-over-year price declines. Kelley Blue Book anticipates average transaction prices will likely begin to decrease when the sales mix of SUVs eventually levels off.”