U.S. August Sales Sink 21% from Year-Ago Levels, Down 5% from Prior Month

Sales for August 2010 in the U.S. market plummeted 21% year-on-year (y/y) as the dramatic effects of the government's "cash-for-clunkers" scrappage programme last year artificially boosted sales a year ago to temporarily unsustainable levels. For the most recent month, sales in the United States came in at 997,574 units, failing to break the one-million-unit mark again. For the full year-to-date, sales are still up 8% to 7.663 million units in total. Sales continued to weaken from July levels as well, down 5% from the 1.050 million vehicles sold in the prior month.

General Motors (GM) still took top billing for August sales, despite posting a massive 25% y/y drop. It still moved 185,105 units, some 60,000 units less than it sold when the government was offering massive rebates to try to jump-start auto sales. Overall, three of its four brands are still up for the month, showing considerable improvement on the strength of the company's new offerings; by GM's estimate, Buick brand is currently the fastest growing brand in the industry, but the Chevrolet brand tumbled 22% y/y. "Last year's Cash for Clunkers program spiked industry sales in 2009, so results this August were, not surprisingly, a bit mixed," Don Johnson, vice-president for GM's U.S. sales operations, said in a statement. "Importantly, three of our four divisions showed solid gains." Second place in the industry went to Ford, which fell a lesser 14% y/y to 157,327, showing the relative strength of the company's offerings even as the market slows. Mercury brand, whose days are numbered as Ford intends to shutter it by the end of the year, fell 22% y/y, while Ford division sales fell a market-beating 11% y/y.

Toyota and Honda, which both did very well a year ago during the height of the cash-for-clunkers frenzy, saw their sales plummet further than the domestic automakers. Toyota saw sales tumble 34% y/y from August 2009, falling from 225,088 units to 148,388 units. Honda saw a similar drop, falling 33% y/y from 161,439 to 108,729 units. "While August results trailed year ago levels when the CARS program generated significant incremental sales for the brand, we're pleased with how the month shaped up," said Don Esmond, senior vice-president of automotive operations for Toyota Motor Sales, U.S.A., Inc. "Customer loyalty rates have returned to traditional levels as Toyota continues to lead the industry as the number one retail brand year-to-date." Of the major automakers, only Chrysler was able to post a gain for the month, up 7% y/y to 99,611 units, due to the fact that it was unable to capitalise on the cash-for-clunkers action a year ago as its factories were still largely shut down from the bankruptcy. This is the fifth straight monthly gain for Chrysler in y/y terms. "Chrysler Group is proud that we have beaten or matched the average industry sales increase for the fifth consecutive month this year and for the calendar year to date," said Fred Diaz, president and chief executive officer for Ram truck brand and lead executive for U.S. sales. "This is proof positive that we are accomplishing our goals – steady, sustainable growth. We will continue to build on this momentum as we begin production on a stream of new product through the end of this year."

Outlook and Implications

There are two comparisons that have significance this month, but not in the traditional way. The y/y comparisons are obviously skewed due to the massive 14.2-million-unit SAAR seen in the prior August, when the government was offering up to US$4,500 to turn in an inefficient old car or truck on a more efficient new one. Instead, one can look at the relative drops as compared to the overall industry decline. The overall market was down 21% y/y, meaning anyone surpassing that average likely had a worse month than can be accounted for simply by the cash-for-clunkers comparison. Toyota and Honda should have had better months, but both dropped more than expected, allowing the domestic automakers to make up more market share yet again. Chrysler's sales have been primarily fleet business in 2010, allowing them continuing improvements as businesses continue to begin spending money again. A lack of a bounce in summer fuel prices has allowed premium vehicles, trucks, and sport utility vehicles (SUVs) to also experience stronger sales than passenger cars.

But the second metric that has significance is the month-on-month (m/m) comparison with July. Sales have been declining for the middle part of this year, falling another 5% from July and giving rise to concerns that the hoped-for recovery of the auto market in the United States has in fact stalled. GM's August sales were down 7.3% m/m compared to July, and Ford saw a drop of 7.6% m/m for the period. Toyota has now dropped into negative territory in the year-to-date with the latest August sales numbers. Signs unfortunately do tend to indicate that the larger issues of consumer confidence and unemployment are keeping people out of showrooms. Added into this mix is the fact that used car prices are now hitting seven-year highs, as consumers eschew big-ticket purchases like new cars and instead go for something less expensive. Demand for used cars is heating up to the point where some dealers are going to extraordinary measures to find them; the supply of used cars has been affected by people keeping their current vehicles longer and the cash-for-clunkers programme having taken over 677,000 of them off the road last year. Automakers are now holding the line on production increases as well, leaving their estimates alone for the second half of the year, happy with the current inventory levels. But while these sales and production numbers may be lower than hoped, incentives are still dropping as automakers are simply unwilling to start putting incentives on new cars. And the reason for this is simple: they do not have to. GM and Ford in particular are now profitable at even these low levels; it is believed that they have restructured to at least break even at an annual sales rate of just 10 million units. With August coming in at an 11.4-million-unit SAAR, the automakers are still making money, even if sales levels are not lighting the world on fire.