November numbers reflect surprisingly good sales year

Heading into 2018, vehicle prices were at record highs, interest rates were rising and Americans increasingly were rejecting the traditional family sedan. So U.S. auto sales appeared headed for a second-straight annual decline. But it hasn't played out as expected: Sales have remained steady even as incentives were disciplined and prices rose further.

Eleven months into 2018, U.S. auto sales rose 0.4 percent from the same period last year. They are on track to finish above 17 million vehicles for a fourth-straight year.

"Anytime you're in an environment where you're selling 17 million units, things are going great from a sales standpoint," Eric Lyman, ALG's chief industry analyst, told Automotive News.

The surprisingly strong year got a boost from better-than-expected November results, which slipped 0.5 percent but exceeded analysts' expectations for a drop of more like 2 percent. The seasonally adjusted, annualized selling rate for November hit 17.55 million, down from 17.65 million a year ago.

Last year's U.S. auto sales totaled 17,238,905. So far, 2018 appears on pace to beat that. Sales totaled 15,695,288 through November, and thus 1,543,618 units need to move in December to do so. For the three prior Decembers, U.S. light-vehicle sales ranged from 1.6 million to almost 1.7 million.

In the decade before the Great Recession, sales were propped up by big incentives that cut into profits but avoided costly layoffs. Not this year.

In November, the average transaction price for a new light vehicle rose 1.7 percent year-over-year to $34,438, according estimates from TrueCar's ALG. At the same time, average incentive spending per vehicle decreased by $131 to $3,672. That means incentives averaged 10.7 percent of the transaction price, down from 11.2 percent a year earlier.

Still, there are headwinds.

Average annual percentage rates on new-vehicle sales dropped to 6 percent in November from 6.2 percent the month before, according to Edmunds. But that relief is likely temporary — thank you, Black Friday discounts! — Edmunds said, noting that the average APR in November 2017 was 4.8 percent.

"An average interest rate above 6 percent is still a tough pill to swallow, especially for shoppers who might be coming back to the market after a number of years," Jeremy Acevedo, Edmunds' manager of industry analysis, said in a statement. "Shoppers who purchased a car in November five years ago could feasibly be facing a 47 percent increase in their interest rate this November."

Edmunds said 0 percent deals represented just 5.5 percent of all vehicle sales financed at a dealership — the lowest November level since 2005.

Among the highest-earning third of U.S. households, which account for half of consumer spending and the majority of new-vehicle purchases, perceptions of vehicle and home prices and interest rates are near the lowest levels of the last quarter century, according to University of Michigan's Surveys of Consumers for November. The all-time lows recorded in the 1970s and early 1980s came amid double-digit inflation and interest rates.

The university also said that vehicle-buying attitudes in general remained at a five-year low, even as general consumer sentiment is otherwise "very favorable."

Chris Marhofer, operating director and partner at Ron Marhofer Auto Family in Stow, Ohio, cited interest rates and affordability as two factors weighing on sales. Barring an economic catastrophe, he said, he expects new-vehicle sales to change little.

"I think it is what it is: plus or minus 1 percent and just going to be a grind," said Marhofer, whose dealership group sells seven brands. "I think manufacturers are trying to figure it out, too, because I don't see them getting real proactive on this. I think everyone's facing the stagnant reality."

Automakers' discipline has been encouraging, however. "I don't see anybody getting crazy with incentives," he said.

For new-vehicle sales in November, FCA US continued to be an outlier among mainstream automakers, with a 17 percent rise, driven by increases of 44 percent for Ram, 12 percent for Jeep, 15 percent for Dodge and 36 percent for Alfa Romeo. Fleet sales jumped to 25 percent of the automaker's vehicle deliveries, but retail sales also rose, though by just 6 percent.

General Motors, which has switched to quarterly sales reporting, had an estimated 1.4 percent increase in deliveries in November. Bloomberg reported that GM's unexpected gain was buoyed by fleet sales.

Other gains came from Hyundai-Kia, at 1.1 percent; Subaru of America, 9.8 percent; and Volvo Car USA, 4.2 percent.

On the other hand, Ford Motor Co.'s sales fell 7.1 percent, with the Ford brand down 7.6 percent and Lincoln up 3.3 percent.

There were declines of 8.3 percent for Volkswagen Group of America, 3.7 percent for Mercedes-Benz USA, 19 percent for Nissan North America and 0.7 percent for BMW of North America.

Toyota Motor Sales U.S.A. dipped just 0.6 percent, while American Honda reported a 9.5 percent drop. Lagging sales of high-volume cars such as the Toyota Camry and Honda Civic weighed on both automakers.

And car sales in general continued their well-noted plunge, falling 13 percent in November, while sales of crossovers, SUVs and pickups rose 5.8 percent.

Even with plummeting car sales, rising interest rates and uncertainty around trade policy, a bright spot in November was that automakers haven't been shoveling money onto vehicles' hoods.

The time to worry would be when retail sales are down, transaction prices are down and incentive spending is up — the "trifecta of negative indicators," Lyman said. "And we're just not seeing that."

Toyota didn't project a fourth-straight year of more than 17 million sales, and it isn't forecasting a fifth one.

But Jack Hollis, head of the Toyota brand for North America, held out hope that as long as major tariffs can be avoided, the industry can keep growing: "I do truly believe that the tail winds are there to make it just as strong next year as it is this year." a