U.S. auto sales are forecast to fall for a seventh straight month in July from 2016’s record pace despite continued high incentives from manufacturers.
Edmonds projects a 6.2 percent decline in volume from last July. Kelley Blue Book estimates a 5.7 percent drop, with both retail and fleet sales underperforming strong year-ago volume.
J.D. Power and LMC Automotive jointly estimate July sales of 1.44 million light vehicles, 5.4 percent lower than a year earlier, when July had one less selling day. Barclay’s puts the slide at 5.6 percent.
Automakers are due to report the results on Tuesday.
“While the retail selling rate will post declines again in July, the larger concern remains the continued deterioration of key industry health indicators,” Thomas King, a J.D. Power vice president, said in a statement. “Manufacturers typically reduce incentive spending following the July 4 holiday, but this year elevated inventory levels coupled with the sales slowdown have compelled them to maintain aggressive discounts throughout July.”
King said last year spiffs fell 14 percent after July 4 but have remained high this year. Incentives are averaging $3,876 per vehicle, a record for July and up 7.8 percent from the previous high set a year ago.
‘Something needs to give’
Edmonds chief analyst Jessica Caldwell said manufacturers are under pressure to clear out holdover vehicles before 2018 model-year models start to arrive on dealer lots.
“July is historically a strong month, but with disappointing sales and inventories still building, something needs to give,” she said. “Production slowdowns will help address some inventory issues, but consumers may be waiting for automakers to loosen the purse strings.”
Through the first six months, U.S. auto sales are down 2.1 percent from the first half of 2016 when full-year volume hit 17.55 million. That was a second straight annual record and the seventh consecutive year of light vehicle sales growth.
July could be the fifth straight month that the seasonally adjusted annualized selling rate comes in below 17 million, said KBB analyst Tim Fleming, who sees a 16.9 million SAAR. Edmond’s forecasts the July selling rate at 16.7 million, while Power-LMC puts it at 17.2 million and Barclay’s sees 17.1 million.
“We’re in the midst of the steady summer sales months when new vehicles tend to stay relatively consistent after peaking during the Memorial Day weekend in May,” Fleming said. “Kelley Blue Book expects sales to start to jump back up again in August and September thanks to model-year closeouts and the Labor Day holiday.”
Analysts see both retail and fleet sales declines in July. Power-LMC projects fleet sales down 5 percent at 202,700 units, or 14.1 percent of total industry volume. Kelley Blue Book expects fleet’s share to decline to 15.9 percent of the market from 16.2 percent last year. Edmunds puts fleet’s July share at 13.8 percent.
Kelley Blue Book’s Fleming expects compact SUVs and crossovers to again lead all segments and capture 18 percent of the market, largely at the expense of flagging sales of mid-size and other car segments. He said full-size pickups will be the best-performing segment in July, in part because of strong demand from small business.
“A strong real estate market, especially with regard to new home construction, in conjunction with low fuel prices, generous incentives and improved product offerings will help to keep truck sales strong,” he said.
But citing several factors unfavorable to auto retailing – elevated inventory, slower turn rates and longer auto loan terms -- Power’s King said the next several months will be tougher.
“The second half of the year will continue to present challenges to manufacturers as they navigate a hyper competitive and dynamic marketplace,” he said, “while working to find the optimal mix of production cuts and discounting necessary to align supply, demand and inventory levels.”
Jesse Snyder is a senior correspondent for Automotive News.