As sales slip, factories stay disciplined
Lean inventories, lower incentives are priorities
That second-half slowdown nearly everyone predicted — even as first-half sales were outpacing 2017 levels — has turned up right on schedule.
U.S. light-vehicle sales fell an estimated 3.7 percent in July and the seasonally adjusted annual rate slipped to 16.73 million — the weakest monthly SAAR since Hurricane Harvey upended the industry last August. It was the first time this year the annual selling rate has dipped below 17 million.
Yet automakers have so far dealt with the downturn in an adult manner — anxious, apparently, to preserve the health of the market even at lower volume.
Steering away from price skirmishes, companies are maintaining production discipline and leaner inventories that better reflect a 70/30 split of light-truck sales to cars. And they have shown a noticeable reluctance to chase market share with costly incentives.
Automakers tempered incentive outlays in July, snapping a streak of monthly increases in average discounts that began nearly five years ago, according to J.D. Power.
Stephanie Brinley, principal automotive analyst with IHS Markit, said not only did incentives decline overall, they declined in the right places. She says automakers have been "adjusting production to meet the demand changes and inventory of cars has been declining, which can ease pressure for incentive-driven sales."
Brinley added: "In recent months, industrywide incentives on light trucks have been increasing while incentives on passenger cars decline. As the utility vehicle segments become more crowded, marketing and sales strategies will need to become more refined, and incentives may continue to increase."
Toyota Motor Corp. last week said global earnings have been dented this year by heavy incentive spending in North America. But market monitor Motor Intelligence says the incentive spend on the average Toyota-brand vehicle fell 10 percent in July to $2,214.
"We are now able to control incentives more adequately by efficiently allocating them to key models," said Masayoshi Shirayanagi, senior managing officer.
Analysts say the July sales decline, which followed two monthly increases, reflects rising interest rates and other factors that have made affordability more of a challenge.
|U.S. light-vehicle sales turned downward in July after 2 straight increases.|
|July||Change vs. July 2017||Jan.-July||Change vs. Jan.-July 2017|
"We've been expecting the market to make a change, and really, that's because we expect the buying conditions to get worse over the year," said Charlie Chesbrough, senior economist for Cox Automotive.
"Affordability continues to be a growing issue," he said. "We think it may be pushing some [new-] car buyers into the used market, where they can pick up a three-row crossover or SUV for about the same price as a new car."
Still, analysts and executives expect a soft landing through year end. They say consumer and business sentiment remains resilient, helped by low unemployment.
"We do believe the underlying economic factors continue to be strong for the industry," said Mark LaNeve, Ford's vice president of U.S. marketing, sales and service. "And we're certainly benefiting from strong underlying consumer health. Bottom line: While a little soft, we have seen months similar in July over the last three years and we believe the industry will run in line with the consensus call of low 17-million-unit range for 2018."
Car sales continued their collapse in July, with sales tumbling across all sedan and coupe segments by 18 percent from July 2017. By comparison, light-truck sales rose 4.3 percent over the previous July and accounted for 69.7 percent of the market, an all-time high.
Among major groups, only FCA, Volkswagen Group and Subaru posted gains last month. FCA's U.S. sales, up 5.9 percent, have risen five straight months. A record July for Jeep and higher Ram sales were the difference. Jeep sold 79,906 vehicles in July, notching monthly records for the Wrangler, Compass and Cherokee. Ram's 2.2 percent increase was helped by strong retail sales of its light-duty pickups.
Ford Motor Co. fell 3.3 percent as car demand continued to slide. The industry-leading Ford brand dipped 2.9 percent and Lincoln was down 11 percent. Ford Motor truck/van volume perked up 9.8 percent while car sales slid 28 percent and SUV and crossover sales slipped 1.5 percent.
The No. 2 Toyota brand slid 5.1 percent and Lexus was down 12 percent — its fifth straight decline. Still, Lexus outsold luxury rivals Mercedes-Benz and BMW in July.
American Honda Motor Co. sales declined 8.2 percent in July, dragged down by a 19 percent plunge in car sales from July 2017. The Honda brand was off 8.4 percent and Acura declined 6.6 percent.
Nissan North America skidded 15 percent as the group continues to dial back discounts and fleet volume. Sales were down 16 percent at Nissan brand and 10 percent at Infiniti.
Sales in July rose 6.7 percent for Subaru, 13 percent for VW brand and 24 percent at Mitsubishi, but were down 2.4 percent for Hyundai brand, 5.8 percent for Kia, 11 percent at Mazda and 2.3 percent for Mini.
The industry's final sales tally for July is estimated because GM, the largest seller, now reports U.S. figures quarterly instead of monthly. GM's U.S. sales fell 3 percent in July, Automotive News estimates.
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