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Pickups Carry Load of Stronger Than Expected Auto Sales in September

Oct. 4, 2016
Generous incentives drove U.S. sales of light-vehicles making September a stronger month than expected for the auto industry. 

Light-vehicle sales in September came in stronger than analysts had estimated, fueled by record incentives, suggesting there’s still some steam left in the U.S. auto industry’s six-year growth spurt.

The annualized selling rate adjusted for seasonal trends reached 17.8 million, the second-fastest pace of the year, according to researcher Autodata Corp. While that pace is off from 18.1 million a year earlier, it’s faster than any analyst estimate in a Bloomberg survey. The average projection was for a 17.5 million rate.

Automakers’ September results released on Oct. 3 are giving investors new evidence to determine whether the industry’s expansion is coming to an end after a record 2015 -- or if there is more room for economic-driven growth. Concerns that U.S. auto sales are slowing have depressed automakers’ shares this year, even as the companies report strong profits amid consistently high volumes.

General Motors Co. North American President Alan Batey said there are enough 11-year-old cars on the road to keep sales robust for a while.

“The industry is going to plateau,” Batey said in an interview. “But it’ll be an all-time record or pretty close” in 2016.

September’s strength was driven in part by generous deals offered to tire kickers. Incentives reached a record of $3,923 per vehicle last month, according to from J.D. Power. The previous record of $3,753 was set in December 2008, the month that the U.S. government first issued emergency funding to GM in preparation for its eventual bankruptcy filing.

Labor Day deals drove up industrywide incentives by $430 per vehicle over last year, according to Mark LaNeve, Ford’s U.S. sales chief. The biggest deals were on passenger cars, such as family sedans, and pickups, he said.

“There was a lot of incentive activity, very aggressive sales events, for the Labor Day period,” LaNeve told analysts and reporters on Oct. 3. “We’ve seen more aggressive pricing activity over the last several months in the market, and we saw a continuation of that in September.”

‘Natural Management’

Carmakers’ deal-making is beginning to trim profits but not in the drastic way it did leading into the last recession, said Mark Wakefield, managing director and head of the automotive practice for consultant AlixPartners.

The discounting “doesn’t feel like it’s an existential need to sell the next vehicle or else we’re going to shut the factory down,” Wakefield said in an interview. “We really aren’t seeing anyone going too crazy and just hammering their profitability for growth and for sales at all cost. It feels like a more natural management of the business.”

GM said it saw sales decline 0.6% to 249,795 cars and light trucks, beating analysts’ estimates of a 1.6% drop. GM said retail sales to individual customers grew 1% last month, as Buick sales jumped 14% and Cadillac sales rose 3.1%. Chevrolet Silverado pickup sales fell 16%, while GMC Yukon sales rose 34%.

“New vehicle sales actually came in stronger than anticipated on healthy retail demand,” said  Michelle Krebs, senior analyst for Autotrader. “Unfortunately, last September was a barn-burner, making the comparisons tough. It was a good month, no question.”

Ram Surge

Fiat Chrysler reported a decline of 0.9%, compared with the average estimate for a drop of 5.1%. Sales of all of its brands fell in September, except the Ram Truck line, which jumped 27%. Ram pickup sales rose 29%.

Ford, which enjoyed elevated fleet sales in the second half of 2015 and first half of this year, sold 203,444 cars and light truck in September, matching analysts’estimates for an 8% drop. Ford’s car sales fell 21%, while its top-selling F-Series pickups declined by 2.6% and SUV sales dropped 3.4%. Ford said its retail sales to individual customers fell 4% in September, while sales to fleet customers, such as rental car agencies, declined 21%.

GM’s ATPs, which reflect retail transaction prices after sales incentives, were $35,804 in September, almost $5,000 above the industry average and approximately $1,000 above last September’s performance.

Nissan Motor Co. sold 127,797 cars and light trucks in the U.S. last month, a 4.9% gain from a year earlier. That compares with the average analyst projection of a decrease of 1.4%, as pricey sport utility vehicles continue to move off dealer lots. Sales of the Murano SUV rose 46%, and the popular Rogue was up 5.6%.

Toyota Motor Corp. reported 197,260 deliveries for a gain of 1.5%, missing the 2% average estimate.

Honda Motor Co. said its sales fell 0.1% from a year earlier period, missing analyst estimates for a 1.6% increase. Honda reported a 0.3% decrease in sales for its Civic compact car line, which had enjoyed double-digit increases through the first eight months of the year. The CR-V, the top-selling SUV in the U.S., continued rolling along with a 6.5% increase for September.

After six years of annual sales increases -- the longest such streak since before World War II -- the industry surprised analysts with a record 17.5 million sales last year. While some argue that more economic growth may release further pent-up demand, many analysts and executives have said they expect a decline or little change from 2015’s record high. Mark Fields, Ford’s CEO, is among those saying the growth cycle has ended.

“The industry has plateaued,” he said last week on Bloomberg Television. “We are seeing some weakness in the retail end of the marketplace that’s manifesting itself through more competitive pressures.”

U.S. consumer confidence rose last month to the highest level since before the recession on optimism about the labor market, the New York-based Conference Board said last week. Available credit and relatively low gasoline prices are also encouraging big-ticket purchases, he said.

“We’re still bullish,” said  Bill Fay, head of U.S. sales for Toyota’s namesake brand, “that the next couple years will be -- maybe not at record levels -- but pretty darn close.”

By Jamie Butters, Keith Naughton and John Lippert

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