U.S. new-car sales on pace to dip, remain flat in July, forecasts show

Automakers' U.S. incentive spending is on pace to decline this month for the first time since early 2014, according to data from J.D. Power and LMC Automotive, despite projections that overall new-vehicle demand will weaken in July and the second half of the year.

U.S. car and light-truck sales are projected to be flat or down in July, forecasts from J.D. Power/LMC, Edmunds and Cox Automotive show. That would be only the third monthly year-over-year drop in 2018.

The forecasts for July are more varied than usual and call for a seasonally adjusted, annualized sales rate of 16.1 million to 17.1 million. A 16.1 million SAAR, as J.D. Power/LMC projects, would be the lowest rate recorded since February 2014. Anywhere in that range would fall below the June rate of 17.47 million.

While U.S. employment growth and consumer confidence remains high, elevated gasoline prices and rising interest rates are expected to dampen second-half volume.

"July sales are looking reasonably strong, but we're starting to see the first signs of speed bumps on the road ahead," Jeremy Acevedo, Edmunds' manager of industry analysis, said in a statement. "With market factors such as rising interest rates keeping shoppers at bay, we expect to see a continued slowdown of the vigorous sales pace that the industry experienced in the first half of the year."

Cox analysts are most optimistic, calling for sales to be even with July 2017. Cox Automotive said rising interest rates and headlines about the prospect of higher vehicle prices if tariffs are levied on imports haven't chased away buyers.

"In fact, the threat of higher prices on the horizon may be driving more shoppers to the showrooms now," Charlie Chesbrough, Cox's senior economist, said in a statement.

But LMC analyst Jeff Schuster says the Trump administration's possible tariffs pose a considerable danger to the auto market and broader economy. After new-vehicle sales topped expectations in the first half of 2018, he said, automakers will have a tougher time finding customers for the rest of the year. The J.D. Power/LMC forecast calls for July sales to be 6 percent lower than a year ago overall and off 7.1 percent on a retail basis.

"July's expected performance is consistent with that notion," Schuster, LMC's president of Americas operations and global vehicle forecasts, said in a statement. "Short-sighted tariffs — and retaliatory responses — are the most significant risk factor for the U.S. and global markets. In fact, significant escalation of tariffs could derail America's strong economic growth and even push the market into a premature recession."

Automakers are scheduled to report U.S. sales for July on Wednesday. July has one fewer selling day in 2018 than it did last year. New-car and light-truck deliveries rose 1.9 percent in the first half, and the SAAR has topped 17 million each month in 2018 except May, when it fell just shy of that level.

"While it's disappointing for the retail sales pace to post declines again, it's important to remember that July only has 24 selling days this year, the fewest for the month since 2012 and one less weekend than last year," said Thomas King, senior vice president of J.D. Power's data and analytics division. "More notable is that incentive spending is on pace to post year-over-year declines for the first time in 54 months."

King said the reduction in incentives is a positive sign for the industry's health but may not last. He said discounts could grow in the months ahead if automakers see demand continue to slide.

General Motors, FCA US and Volkswagen Group of America are all expected to gain market share in July, according to the Cox and Edmunds forecasts, while Toyota Motor Sales U.S.A. and Nissan North America are projected to lose share. Cox calls for Ford Motor Co. to lose share at American Honda's expense, while Edmunds is forecasting the opposite.