Sales fall as second-half slowdown takes root; SAAR hits 17.54M

Major automakers, with the exception of Fiat Chrysler, posted lower U.S. sales in September behind the ongoing slump in the car market and softer retail demand, even amid elevated incentive levels, signaling the anticipated second-half slowdown is continuing.

U.S. light-vehicle deliveries last month fell 5.5 percent, slightly better than analysts' forecast for a 7 percent decline compared to September 2017, when sales spiked as consumers replaced vehicles destroyed by Hurricane Harvey.

Still, on a volume basis, it was the industry's fourth-best September on record. 

And by another measure, the September numbers were far stronger. The seasonally adjusted, annualized rate of sales came in at 17.54 million, rising above 17 million for the seventh time this year, after two months below that level.

The September 2017 SAAR was 18.2 million, the strongest month of the year.

Overall, U.S. car sales slid 20 percent in September while light-truck demand rose 2.2 percent.

U.S. sales edged up 1.3 percent through August after a better-than-expected first half, driven in part by a boost from U.S. tax reform. The SAAR declines in July and August were taken as a sign that a second-half slowdown predicted by analysts is unfolding. With September results tallied, U.S. sales have now edged up 0.5 percent in 2018.

“The U.S. economy and auto industry remain strong,” said General Motors Chief Economist Elaine Buckberg. “A new United States-Mexico-Canada trade agreement will reduce uncertainty for the auto industry and all three countries. We believe 2018 will be the fourth year in a row with total industry sales above 17 million units.”

Company by company

FCA US sales rose 15 percent last month to 199,819 -- enough to outsell Ford Motor Co. for the first time since 2015 -- behind higher fleet volume and stronger results at the Jeep and Ram brands. FCA said deliveries jumped 14 percent at Jeep, 9 percent at Ram and 41 percent at Dodge. Volume dropped 7 percent at the Chrysler brand and slumped 46 percent at Fiat. 

FCA's retail sales totaled 149,713 units, with fleet accounting for 25 percent -- or just over 50,000 units-- of all volume last month.

General Motors' sales dropped an estimated 16 percent last month, with deliveries down 18 percent at Chevrolet, 8.6 percent at GMC, 11 percent at Buick and 17 percent at Cadillac.  

GM no longer releases monthly sales results but the company said Tuesday its third-quarter U.S. deliveries fell 11 percent to 694,638 cars and light trucks, with every brand off during the period. For the year, GM said its U.S. sales have dropped 1.2 percent behind declines at every brand.

Ford Motor's U.S. sales fell 11 percent behind the ongoing industrywide slump in car demand and lower light-truck volumes. Deliveries fell 11 percent at the Ford division and 7.2 percent at Lincoln, the company said.

Ford's pickup/van demand slipped 9.9 percent and SUV/crossover sales dropped 2.7 percent, while September car deliveries skidded 26 percent. Ford Motor's U.S. car sales have now dropped 17 percent this year as the company prepares to discontinue most sedans under the Ford brand in North America. 

Retail volume declined 13 percent and fleet shipments dropped 6.7 percent last month, Ford said.

Japan 3

At Toyota Motor Corp., volume dropped 10 percent last month, with car sales plunging 25 percent and light-truck demand dipping 0.3 percent. Toyota division sales slipped 11 percent and Lexus was off 6.1 percent.

Nissan Motor Co.'s September sales fell 12 percent, with car deliveries plunging 36 percent and light-truck volume rising 6.6 percent. Sales fell 13 percent at the Nissan brand and 1.5 percent at Infiniti.

Honda Motor Co. reported sales of 132,668, a decline of 7 percent, reflecting a 20 percent drop in car deliveries. Volume slipped 8.2 percent at Honda but rose 4.4 percent at Acura.

Subaru extended its streak of year-over-year monthly gains to 82 with a 3.5 percent increase in September sales.

September deliveries declined 1.8 percent at Kia, 17 percent at Mazda, 8.6 percent at Mitsubishi, 7.4 percent at Mini and 59 percent at Smart but increased 3 percent at Hyundai.

The Volkswagen brand snapped an eight-month streak of gains, with volume off 4.8 percent in September. Even with strong crossover sales, the company said September results were negatively impacted by delays to certify emissions on some 2019 models, limiting inventories.

Among other luxury brands, volume rose 0.2 percent at Audi, 1.3 percent at BMW, 10 percent at Volvo, 0.9 percent at Porsche and 8.7 percent at Land Rover. Sales skidded 76 percent at Genesis and 38 percent at Jaguar. 

Industry outlook

While the U.S. economy and employment continue to grow, and consumer confidence remains high, rising interest rates and elevated gasoline prices are expected to dampen consumer demand. Increasing stockpiles of late-model used vehicles and climbing new-vehicle prices are also putting downward pressure on new car and light-truck sales.

“There’s no question the Fed’s actions this year are impacting car buyers,” Jonathan Smoke, chief economist for Cox Automotive, said last week after the Federal Reserve hiked interest rates for the third time in 2018. “It will not get better for consumers or the industry from here.”

Smoke said the Fed’s seven rate increases over the last 22 months have already shifted the market from one that peaked with new-vehicle demand two years ago -- 17.55 million in 2016 -- to one that is now generating peak used-vehicle sales.

“Clearly, the Fed isn’t finished, as they have indicated an additional increase will come in December, with more expected in 2019,” Smoke said.

The Trump administration’s proposals to increase tariffs on light-vehicle imports could also derail sales if enacted.

Company outlook

Ahead of today's reports, every major automaker except Fiat Chrysler and VW-Audi was forecast to post lower September sales, based on Bloomberg’s survey of analysts.

Volume was projected to drop 14 percent at General Motors, 9.1 percent at Ford Motor Co., 6.7 percent at Toyota Motor Corp., 4.1 percent at Honda Motor Co., 20 percent at Nissan Motor Co. and 6.5 percent at Hyundai-Kia. Sales were expected to rise 8 percent at FCA US and 0.4 percent at VW-Audi, Bloomberg’s survey showed.

Spiffs

Average incentive spending per new vehicle over the first several weeks of September was $3,910, down from $4,061 during the same period last year, J.D. Power estimates. ALG projects average incentive spending per unit decreased by $100 to $3,785 in September and the ratio of incentive spending to average transaction price is expected to be 11.3 percent, down from 11.9 percent a year ago. Among major automakers, the Detroit 3 continue to be the biggest spenders on incentives, ALG estimates show. (See chart below.)

Odds and ends

• The average new-vehicle retail transaction price was tracking at $32,003, an all-time monthly record, J.D. Power says. The previous high for the month of September — $31,543 — was set last year.
• September 2018 had 25 selling days, one fewer than September 2017.
• Edmunds says the average down payment for a new vehicle soared to $4,198 last month, compared to $3,817 in September 2017 and $3,555 five years ago.
• The availability of 0 percent loans dropped to 5.6 percent compared with 10.1 percent in September 2017, hitting the lowest September level since 2005, Edmunds says.
• Light trucks accounted for 69 percent of new-vehicle retail sales through Sept. 23 — the highest level ever for September — marking the 27th consecutive month above 60 percent, J.D. Power said.
• ALG estimates the average transaction price for a new light vehicle was $33,436 in September, up 2.3 percent from a year ago.
• Days to turn, the average number of days a new vehicle sits on a dealer lot before being sold to a retail customer, was 69 days through September 23, down six days from September 2017, Power said.
• Fleet shipments are expected to total 257,800 units in September, up 0.8 percent from September 2017, Power says. Fleet volume is expected to account for 18 percent of total light-vehicle sales, or flat vs. last year.

Quotable

"The sedan recession continued in September ... the silver lining beginning to emerge however is the pull-back in incentive activity (car incentives down 7.7% year over year and light truck incentives down -0.2%). We expect incentive spending on cars to continue falling as automakers shift spending toward the increasingly crowded crossover segment."

-- Barclays analyst Brian Johnson

“The new-vehicle market is challenged by affordability, and ironically the most affordable and most popular vehicles are imported and face the threat of new tariffs which will drive their prices higher.”

-- Jonathan Smoke, chief economist for Cox Automotive

“The trickle-down effect of elevated interest rates really started hitting car shoppers in September. While new vehicle prices continue to rise, favorable credit offerings are growing increasingly more difficult to come by. Buying conditions are far less amenable for consumers than they were before, which might come as a shock for shoppers coming back to the market for the first time in a few years.”

-- Jeremy Acevedo, Edmunds’ manager of industry analysis.

“Robust new industry sales, a slight decline in incentive spending and growing transaction prices are all indicators pointing to a resilient industry.”

-- Oliver Strauss, chief economist for ALG

“While September sales are expected to decline, average transaction prices remained strong, rising 2 percent year-over-year. With interest rates on the rise and manufacturer incentives at a healthy level, thanks to tighter production, monthly payments for consumers are immediately impacted. If gas prices stay high in the fourth quarter, affordability will likely be a concern for new-car buyers and could lead to fewer sales at year-end.”

-- Tim Fleming, analyst for Kelley Blue Book

Editor's note: The SAAR for September 2017 was incorrectly stated in an earlier version of this story and has been updated.