FCA, Ford, Honda, Hyundai-Kia, trucks drive industry gain

Led by strong Jeep sales at FCA and smaller gains at Ford, Honda, Hyundai-Kia and the VW brand, U.S. new-vehicle sales jumped 4.7 percent last month behind robust light-truck demand and holiday deals. It is the third increase in monthly sales this year.

The seasonally adjusted, annualized sales rate for May totaled 16.91 million, according to the Automotive News Data Center, down from a pace of 17.21 million in April but up from May 2017’s 16.82 million rate.

May, one of the biggest months of the year for sales, marks the first time the SAAR fell below 17 million since August 2017, when Hurricane Harvey disrupted demand.

Sales are now up 1.2 percent this year through May in what many analysts still predict will be a down year for overall industry volume.

Favorable economic factors and steady consumer demand for SUVs, pickups and crossovers are driving the market even as interest rates and gasoline prices edge up.

Helped by Memorial Day holiday deals, notably fatter discounts on remaining 2017 minivan, crossover, pickup and SUV inventory, light-truck demand rose 14 percent in May. Car sales slipped 11 percent.

"Despite rising transaction prices and higher fuel costs, the new-vehicle market remains strong. Consumers continue to buy trucks and SUVs at an accelerated pace, more than offsetting the ongoing drop in car sales," said Karl Brauer, executive publisher for Autotrader and Kelley Blue Book. "Economic indicators suggest we’ll see this trend throughout the summer and fall, though talk of tariffs and the specter of $4-plus-a-gallon fuel could end the party, and inventory levels remain relatively high at several automakers."

Company by company

FCA US volume rose 11 percent in May on a surge in Jeep deliveries and higher Ram and retail volume.

The company said Jeep sales rose 29 percent to a May record of 97,287, while Ram deliveries edged up 2 percent. Sales rose 4 percent at Dodge and 159 percent at Alfa Romeo, but slumped 18 percent at Chrysler and 46 percent at Fiat.  

FCA said U.S. retail sales in May rose 10 percent to 167,785 and accounted for 78 percent of total volume. Fleet sales accounted for 22 percent of total sales, a slight uptick from 21 percent for May 2017.

General Motors, the biggest seller in the U.S., plans to release sales results on a quarterly basis instead of monthly but analysts expect the company's May U.S. deliveries to rise more than 10 percent, driven by redesigned crossovers and fatter discounts.

At Ford Motor Co., May sales edged up 0.5 percent, with light-truck volume offsetting weaker car demand. Deliveries at the Ford division increased 0.8 percent while Lincoln sales dropped 5.2 percent. 

Ford said retail sales rose 3.5 percent last month while fleet shipments dipped 4.6 percent.

Weaker car demand prompted Toyota Motor Corp. to post a 1.3 percent decline in May volume, with sales off 1.5 percent at the Toyota brand and 0.1 percent at Lexus. Toyota said car deliveries slid 11 percent last month while light truck demand rose 5.8 percent.

May sales slipped 4.1 percent at Nissan Motor Co. as the company dials back retail incentives. Volume dropped 3.8 percent at the Nissan division and 7.1 percent at Infiniti. ALG estimates Nissan's average new-vehicle incentive in the U.S. dropped 19 percent to $3,325 last month compared with May 2017. (See chart below.)

Honda Motor. Co. sales in May jumped 3.1 percent on a 9.2 percent increase in light trucks, offsetting a 2.7 percent dip in car deliveries. Volume rose 4.3 percent at the Honda division but slipped 8 percent at Acura.

Hyundai-Kia ends skid

Hyundai-Kia snapped a 17-month skid with a 5.9 percent gain in May volume. Sales rose 10 percent at Hyundai and 1.6 percent at Kia, but dropped 39 percent at Genesis.

The Volkswagen brand, helped by new and redesigned crossovers, saw May U.S. sales rise 4 percent to 31,211. Volume rose 7.1 percent at Subaru, and surged 15 percent at Mazda and 32 percent at Mitsubishi, behind higher light-truck deliveries.

Among other luxury brands, volume rose 0.4 percent at Mercedes, 3.3 percent at BMW, 42 percent at Land Rover, 0.6 percent at Audi and 4.2 percent at Porsche. Deliveries dropped 25 percent at Maserati and 24 percent at Jaguar.  

Driven by trucks

U.S. new-vehicle sales continue to be driven by healthy light-truck demand while car and fleet volumes remain weak.

“The movement into SUVs and out of cars is accelerating,” Mark LaNeve, head of U.S. sales for Ford, said on a conference call Friday. “If fuel prices become a concern for the customer, instead of moving into a sedan, they move into a smaller SUV or a newer one with better fuel economy.”

The U.S. tax reform that has fattened consumer wallets, low but rising finance rates, as well as steady, strong job gains are also supporting sales, automakers and analysts say.

“Higher interest rates appear to be incentivizing car shoppers, which is likely why we’ve seen stronger than expected sales so far this year,” said Jeremy Acevedo, Edmunds' manager of industry analysis. “Since interest rates have been creeping up all year, shoppers are likely thinking it’s better to buy now before rates get any higher."

The shift to crossovers, SUVs and pickups continues to push average new-vehicle transaction prices higher.

Kelley Blue Book estimates the average transaction price for light vehicles in the United States was $35,635 in May, an increase of $1,187, or 3.4 percent, from May 2017, but down $145, or 0.4 percent, from April.

17 million

The U.S. new-vehicle market, after seven straight annual gains capped by a record 2016, slipped 1.8 percent to 17.245 million units last year.

Overall, U.S. sales are forecast to drop to slightly below 17 million for the first time in three years, with most 2018 estimates from analysts ranging from 16.7 million to 17 million units.

Some analysts have begun revising upward their outlook for U.S. sales in 2018 based on the unexpected benefits of U.S. tax reform and overall economic growth.

LMC said this week it was increasing its full-year forecast for light-vehicle sales to 17.1 million from 17 million. Cox's full-year forecast remains at 16.7 million vehicles, although it says it could make an upward revision at the end of the second quarter.

Company outlook

Ahead of today’s reports, May sales were projected by analysts polled by Bloomberg to rise at four major automakers: 11 percent at General Motors, 7.4 percent at FCA US; 1.1 percent at Honda Motor Co. and 10 percent at VW-Audi. Volume was expected to slip 0.6 percent at Ford Motors Co., 2.2 percent at Toyota Motor Corp., 7.6 percent at Nissan Motor Co. and 1.6 percent at Hyundai-Kia, based on analysts polled by Bloomberg.

Spiffs

The average new-vehicle incentive was tracking at $3,665 in the first three weeks of May, J.D. Power says, flat from a year ago. ALG estimates average incentive spending per unit grew 5 percent to $3,679 in May, year over year, with GM, Fiat Chrysler, Nissan and Volkswagen among the biggest average spenders on deals. Overall, across the industry, the ratio of incentive spending to average transaction price is expected to be 11.1 percent, up from 10.9 percent from a year ago, ALG says.

Odds & ends

• There were 28 selling days last month vs. 27 in May 2017.
• Auto loan interest rates are expected to hit record highs not seen since 2009 in May, Edmunds says. The annual percentage rate on new financed vehicles averaged 5.75 percent in May, compared to 5.04 percent in May 2017 and 4.17 percent in May 2013.
• Fleet sales are expected to total 297,700 in May, up 0.9 percent from May 2017, J.D. Power says, and fleet volume is expected to account for 19 percent of total light-vehicle sales In May, which is flat vs. last year.
• J.D. Power says days to turn, the average number of days a new vehicle sits on a dealership lot before being sold to a retail customer, was 68 in May, down 2 days from May 2017.
• Light trucks accounted for 67 percent of U.S. light-vehicle deliveries in the first three weeks of the month, the highest level ever recorded in May, J.D. Power says.

Quotable

“Plot lines are thickening as automakers deploy varying strategies in a strong and stable, but flat, sales environment for 2018. Nissan and Hyundai are maintaining sizeable year over year decreases in [incentive] spending, rightsizing their sales goals to drive long term brand health. Conversely, GM is expected to become the top spending automaker in the industry, surpassing the high dollar amounts seen by BMW and Daimler.”

-- Eric Lyman, ALG’s chief industry analyst

“Gas prices continue to be in the news. Our survey shows that $4 a gallon is when consumers start thinking about a more fuel-efficient vehicle.”

-- Rebecca Lindland, executive analyst at Kelley Blue Book

“It’s like the best of both worlds, We’re seeing economic activity has just really started to pick up in a lot of sectors. The only thing you can really point to would be that tax reform that happened at Christmas time -- that additional money consumers are taking home with them is having a positive impact on their wallets and their confidence."

-- Charlie Chesbrough, senior economist for researcher Cox Automotive