Sales dip to start 2nd half amid car slump

Editor's note: The July incentive data table has been updated to remove incorrect June incentive data.

Paced by declines at Ford, Nissan, Honda, Toyota, General Motors and Hyundai-Kia, U.S. light-vehicle sales fell an estimated 3.7 percent in July as the auto industry lost some speed going into the second half of a year projected to be weaker than the robust first six months.

The seasonally adjusted, annualized rate of sales for July fell to 16.73 million, in line with the 16.7 million rate forecast by analysts polled by Bloomberg. It is the weakest SAAR reading since August 2017’s revised 16.58 million rate, when Hurricane Harvey disrupted sales.

U.S. light-vehicle sales have now climbed 1.1 percent this year through July. Overall, light truck demand rose 4.3 percent while car deliveries skidded 18 percent last month.

Among major companies, only Fiat Chrysler, the Volkswagen Group and posted gains, while Subaru of America extended its winning streak to 80 months.

The industry’s final sales tally for July is estimated because GM, the largest seller, now reports U.S. figures on a quarterly basis instead of monthly. GM’s U.S. sales fell 3 percent in July, Automotive News estimates.

At Ford Motor Co., strong sales of F-Series pickups couldn’t overcome flagging sales of passenger cars. Toyota Motor Corp. chalked up its biggest drop of 2018 with a 6 percent drop. Nissan Motor Co. deliveries declined for the fifth month this year as it continued to pull back from profit-eroding tactics to push sales. Kia outsold the Hyundai brand as both brands declined.

The tallies were in line with analysts’ forecasts of a soft July. Sales through June had been surprisingly strong – up 1.9 percent. But with most estimates pointing to total U.S. sales finishing below 17 million after a historic three-year run above that mark, something was due to give.

Automakers -- motivated by leaner inventories and strong light-truck demand -- also tempered incentive outlays in July, snapping a streak of monthly consecutive increases in average discounts that began nearly five years ago, J.D. Power data show. However, ALG and Autodata say average new-vehicle incentives rose last month vs. July 2017.

“July might indicate the market has finally taken the turn we’ve been expecting,” Charlie Chesbrough, senior economist at Cox Automotive, said in a statement.

There was one less selling day and one less weekend this past July than a year earlier.

The Bureau of Economic Analysis on Wednesday revised seasonal factors used to calculate the SAAR in recent years. The SAAR was 17.32 million in June and 16.79 million in July 2017, and topped 17 million every month this year until July.

Company by company

Another big month at Jeep and higher Ram demand helped FCA US post a 5.9 percent increase in July sales. Volume rose 15 percent to 79,906 at Jeep -- setting a July record for the brand -- and 2.2 percent at Ram. But sales skidded 45 percent at Fiat and 13 percent at Chrysler while dipping 0.5 percent at Dodge.

FCA said retail deliveries increased 6 percent to 153,925 while fleet shipments totaled 17,045. Fleet accounted for 10 percent of FCA's overall July volume, the company said. The automaker's U.S. sales have risen five straight months.

Ford Motor’s sales fell 3.3 percent as car demand slumped again and retail volume fell by double digits. July deliveries dipped 2.9 percent at the Ford division and 11 percent at Lincoln, the company said.

Overall, Ford truck sales rose 10 percent while car sales slid 28 percent and SUV and crossover demand dipped 1.5 percent. The company’s U.S. sales have now dropped four out of seven months this year, mostly behind a 16 percent decline in car sales.

Toyota Motor Corp. said deliveries slid 5.1 percent at the Toyota division and 12 percent at Lexus. It was the sixth straight decline for Lexus. 

At Honda Motor, July volume dropped 8.2 percent, dragged down by a 19 percent decline in car sales. Deliveries fell 8.4 percent at the Honda division and 6.6 percent at Acura.

Nissan Motor Co. skidded 15 percent as the company continues to dial back on discounts and fleet volume. Sales were down 16 percent at Nissan and 10 percent at Infiniti. ALG estimates Nissan Motor's average incentive per new vehicle last month was $4,199, down 7.3 percent from July 2017.

Sales rose 6.7 percent at Subaru, 13 percent at the VW brand and 24 percent at Mitsubishi but slipped 2.4 percent at the Hyundai brand, 5.8 percent at Kia, 11 percent at Mazda and 2.3 percent at Mini.

Among other luxury brands, deliveries rose 24 percent at Volvo, 3.1 percent at Porsche, 2.1 percent at Audi and 0.1 percent at BMW. Volume dropped 20 percent at Mercedes and 63 percent at Genesis.

July 4 deals

Edmunds says demand rose in the first half of the month -- boosted by July 4 holiday deals -- before dropping in the second half.

Rising interest rates, slower U.S. economic growth, elevated gasoline prices and a rising supply of late-model used vehicles are expected to dampen second-half demand even as employment gains and consumer confidence remain strong.

First-half sales were also stronger than projected in part because of benefits from U.S. tax reform, analysts say.

Company outlooks

Ahead of Wednesday's reports, among major automakers, only two -- FCA US, up 2.4 percent, and VW-Audi, up 1.6 percent -- were projected by analysts polled by Bloomberg to post a rise in July U.S. sales. Volume was forecast to drop 0.3 percent at General Motors, 2.5 percent at Ford Motor Co., 7.8 percent at Toyota Motor Corp., 5.6 percent at Honda Motor Co., 6.7 percent at Nissan Motor Co. and 2.8 percent at Hyundai-Kia.

Spiffs

J.D. Power says average new-vehicle incentives were tracking at $3,665 last month, down from $3,869 in July 2017, driven by reduced spiffs on cars, which fell by $579, while light truck incentives rose by $5.

Odds & ends

• There were 24 selling days last month compared with 25 in July 2017 and the fewest for the month since 2012.

• The retail SAAR, a measure of the market’s overall health, was expected to total 14.3 million in July, with fleet accounting for 14.4 percent of industry volume, Edmunds says.

• The annual percentage rate on financed new vehicles averaged 5.74 percent in July compared with 4.77 percent in July 2017, representing the largest year-over-year jump that Edmunds have seen so far in 2018.

• ALG says average incentive spending per new-vehicle grew by $116 in July from a year earlier, to $3,754, and the ratio of incentive spending to average transaction prices is expected to be 11.4 percent, up from 11.3 percent a year ago.

• The average new-vehicle retail transaction price was tracking at $31,561 in July -- an all-time monthly high – J.D. Power said.

• Days to turn, the average number of days a new vehicle sits on a dealer lot before being sold, stood at 68 through July 22, down 4 days from last year, J.D. Power says.

Quotable

"It feels like the primary forces at work in the current new-car market, including supply, demand and pricing, are pushing transaction costs to a level some buyers aren’t willing to pay. We saw high fleet sales from a number of automakers in July, but even that wasn’t enough to hit positive overall numbers in July."

 -- Karl Brauer, executive publisher for Autotrader and Kelley Blue Book

"Incentives spending in July was relatively restrained, as dealer inventory appears to be at a comfortable level, a sign automakers are managing production well in the post-peak era. Regional incentives are still being used by [automakers] where market share battles are heaviest. This use of regional, VIN-specific, conditional offers are smart, strategic investments by [automakers] to apply incentives as necessary, protecting margins on the remainder of the transactions. New 2019 models in popular vehicle segments are selling with little or no cash offers."

-- Brad Korner, general manager of rates and incentives for Cox Automotive

"Cars are expected to make up only 31 percent of July sales, down from 36 percent just one year ago, which is pushing transaction prices up as consumers opt for pricier SUVs and trucks. Prices also are likely to strengthen as the average days in inventory has begun to recede for the first time this decade, which is a sign automakers are managing production well in the post-peak demand era."

-- Tim Fleming, Kelley Blue Book analyst

“The year-over-year growth rate in average transaction price at the industry level remains resilient while incentive spending in dollar terms is inching up by just over $100 versus a year ago in a sturdy sales environment. As a percentage of ATP, incentive spending is barely growing year-over-year showing that some automakers are slightly decelerating their incentive spend ratio."

-- Oliver Strauss, ALG’s chief economist.