Fleet gains keep sales pace above 17 million

The numbers looked ugly, but U.S. auto sales weren't really that bad in September, considering hefty fleet volumes and a shift in the calendar.

The industry's seasonally adjusted, annualized selling rate came in at an estimated 17.16 million, according to the Automotive News Data Center. That would be the fourth-highest level of 2019 so far and the strongest of the third quarter, even though volume declined for the first time since June, with September sales falling 12 percent to 1.3 million.

Total sales in the third quarter were effectively flat, at 4.3 million.

Jeremy Acevedo, Edmunds' senior manager of industry analysis, said fleet sales have helped sustain the sales pace but added that retail sales aren't "dropping off too sharply." Acevedo said retail sales have been steady throughout the year.

"Conventional wisdom says that there's only so many fleet sales, but I think that 2019 might be writing a little bit of a different story on that front," Acevedo told Automotive News. "I think that we will see close to a record fleet percentage this year."

September sales results were hampered by the Labor Day weekend rush falling in August this year. That contributed to double-digit drops for Nissan Group, Toyota Motor North America, American Honda and Volkswagen Group of America. Hyundai-Kia posted a 9.9 percent decline, and Subaru, with a 9.4 percent dip, broke its streak of consecutive year-over-year gains after 93 months.

Sales by General Motors and Ford Motor Co., which no longer report monthly results, also were estimated to have fallen more than 10 percent, according to the Automotive News Data Center, while FCA US sales fell an estimated 10 percent.

In the third quarter, GM said all four of its U.S. brands posted gains. That resulted in a total increase of 5.9 percent to 735,650 deliveries, according to the data center. Ford sales fell 5.1 percent in the quarter to 576,006, according to the data center, while FCA's sales rose just a fraction — by 527 vehicles — to 565,034. Ram was the only FCA brand to gain, surging 15 percent, while Jeep deliveries dropped 2.3 percent.

Cox Automotive Senior Economist Charlie Chesbrough said the strong growth rates the industry had in recent years have slowed. This suggests that affordability issues are deterring consumers, he said, because "they just aren't able to keep up with the market."

Acevedo said Americans are buying at the "very tip of their budget." He pointed to record levels of SUV and pickup sales to make his case. ALG said the average transaction price in September was $34,709.

"A lot of things need to go right for shoppers to be able to maintain their current tastes in vehicles. We've seen interest rates rolled back.," Acevedo said. "One thing for shoppers right now is that there is an out: They can buy less car; they can buy less content. That's the other factor here. Americans are contenting their cars more than they ever have, so before it really inhibits sales, I think that we will see shoppers maybe buy a little bit less — move down, if not in size, at least in content."

Chesbrough said fleet orders have been juiced by changes made as part of the tax overhaul enacted in 2017 that allow businesses to depreciate up to the full cost of a vehicle in its first year. There has been "tremendous activity in fleet year to date," he said.

"We think that there is going to be a bit of a period where the growth of fleet that we've seen thus far isn't going to be able to maintain the strong levels that we've had," Chesbrough said on a call with reporters.

J.D. Power projected that September fleet deliveries rose 4 percent to 236,900. That would make fleet volume 19 percent of total light-vehicle sales, up from 17 percent in September 2018.

With some consumers priced out of the new-vehicle market, automakers have countered the decline in retail demand with higher fleet shipments. Total fleet sales are up 5.8 percent in 2019 through September, Cox Automotive said.

Cox said fleet has made up 17.4 percent of the new-vehicle market in 2019, compared with 16.2 percent in 2018. But Cox said combined rental, commercial and government purchases of new vehicles were down 7.3 percent last month.

Among brands, Ford, Ram, Mitsubishi, Volkswagen and Jeep have posted higher fleet shipments this year, Cox said, while fleet volume has dropped at Chrysler, Hyundai, Kia, Nissan and Chevrolet.

Zo Rahim, manager of economics and industry insights for Cox Automotive, said a potential record year in fleet sales wouldn't be a bad thing for the industry. Rahim said fleet vehicles today are of higher quality than previous decades, so they're turning into solid used options once their days on rental lots are over.

"It's not like your granddaddy's fleet," Rahim told Automotive News. "It's not the fleets that we saw in the '80s, '90s and early 2000s, where it was these cookie-cutter coupes with cloth interiors and roll-down windows. These are retail-ready fleet vehicles."

Meanwhile, Cox continues to see strength in the used market. Jonathan Smoke, chief economist at Cox, predicted that used sales will rise 1.5 percent this year, "which is in contrast with the decline that is likely to happen in retail new-vehicle sales."