US Sales Climb 26% Y/Y in May

The US market experienced an extremely solid 26% year-on-year (y/y) gain for May 2012, a big improvement over May 2011's inventory-impaired levels; total sales for May came in at 1.335 million units. For the first five months of the year, sales are up 13% to 5.987 million units year-to-date (YTD) as car sales have turned out to be one of the bright spots of the slow economic recovery.

Leading the pack for the month of May was General Motors (GM), posting a solid 11% y/y improvement to 245,256 units (up 2% to 1.067 million YTD). The company reported that most of its brands saw increases for the month, with Chevrolet up 10% y/y, GMC up 19% y/y, and Buick up 19% y/y as well—only Cadillac saw another dip, down 15% y/y. The monthly tally was the highest sales volume for GM in 33 months, according to the company. "GM's sales in May were the highest in almost three years and we are poised to keep delivering good news for the U.S. economy with one of the most aggressive new product offenses in our history," said Don Johnson, vice-president of US Sales Operations. "About 70 percent of our nameplates will be new or freshened over the course of 2012 and 2013 and that positions us very well as the industry and GM start to approach pre-recession sales levels." The company pins the decline in Cadillac sales on a planned reduction in fleet sales, to the tune of 82% lower than a year ago—likely stemming from the switch over from the old DTS sedan now out of production to the new XTS sedan just rolling of assembly lines.

Ford came in second for the month, with a 13% y/y rise to 215,699 units (up 7% to 933,179 units YTD). The company reported gains in cars, trucks, and utility vehicles, led by the Ford F-Series pick-up which posted a 29% y/y increase in May. The Fusion mid-size sedan posted its best May ever and strongest-ever retail month, up 9% to 26,857 units. Focus was up, as were Taurus and Mustang (which outsold its main rival the Chevrolet Camaro), and Explorer had its best sales month yet for the redesigned model. "Ford posted solid gains across our fresh lineup of new cars, utilities and trucks in May," said Ken Czubay, Ford vice-president of US Marketing, Sales and Service. "Fuel efficiency continues to be a top purchaser driver, and Ford's wide range of fuel-efficient products delivered again." Some of Ford's success may be attributable to higher incentives however, meant to clear lots of vehicles like the Fusion, which will shortly be replaced by a new model.

Toyota posted significant gains for the month as well, up 87% y/y to 202,973 units (up 24% to 868,300 units YTD), which at first may seem like an eye-popping figure, but one must remember that May 2011 saw the first pinch of inventory problems for Toyota and other Japanese automakers hit by the March 2011 tsunami and earthquake in northern Japan. "We're grateful to our customers who have made Toyota the number one retail brand in America for the third consecutive month," said Bob Carter, Toyota Division group vice-president and general manager for Toyota Motor Sales USA. "Our growth has been driven by the success of our new products, led by Camry and Prius family, part of the most aggressive product launch in our history." Toyota's gains for the month are more a function of the restoration of the Toyota brand to its traditional spot, instead of some massive rediscovery of the brand by consumers, or the introduction of some amazing new product.

Chrysler continues to make huge gains on a monthly basis, posting another 30% y/y gain to 150,041 units (up 33% to 689,257 units YTD). This marks the 12th consecutive month of gains over 20% for Chrysler, and the 36^th consecutive month of increases. Chrysler brand sales were up 84% y/y, while Jeep posted a 24% y/y gain. Fiat posted its strongest month to date, with sales up 128% y/y, and the new Abarth high-performance model selling faster than production can keep up. "In spite of a tremendous amount of global economic uncertainty, the U.S. new vehicle sales industry continues to power ahead," said Reid Bigland, President and CEO at the Dodge Brand and Head of US Sales. "We are also in the process of adding production capacity as quickly as possible to meet strong demand for our products."

Honda posted solid gains as well, up 48% y/y to 133,997 units (up 10% to 576,174 units YTD), as it too feels the improvement of unencumbered inventory as compared to the year-ago month's problems. Hyundai's growth has slowed somewhat, with the company posting an 11% y/y gain to 118,790 (up 14% to 530,237 YTD), while Nissan brings up the sixth position in the market with a very respectable 21% y/y gain to 91,794 (up 12% to 485,484 YTD).

Outlook and Implications

Reports of a sustained Memorial Day holiday weekend surge were overstated, as May auto sales came in at a seasonally adjusted pace of 13.8 million units, the lowest monthly sales rate so far in 2012. Although the May results were below expectations, they are in line with the IHS outlook that the sales pace will slow down from the fast start realized in the first quarter of 2012. Evidence regarding improved credit conditions, especially for sub-prime lending, and the historically high age of the vehicle fleet should continue to help support levels throughout the year and the full-year 2012 estimate for light-vehicle sales remains at 14.3 million units. There were 26 selling days this May, two more than last year. Year-on-year (y/y) comparisons here do not adjust for the difference in selling days. As fuel prices stabilise, light truck sales have shown some signs of rejuvenation, with sector sales up 25.9% y/y, while passenger car sales improved 25.5%. Compared to April 2012, light truck sales were up 17.2% versus an 8.5% gain by the car sector. Even with some stabilisation though, fuel prices remain high and the sales mix for May favoured the passenger car sector for the fifth consecutive month, garnering 50.5% of the total volume.

Inventory for the three Detroit manufacturers was mixed in May as sales generally outpaced production. At GM, month-end inventory stood at 694,000 units down 7,000 units over April 2012. Full-size pickup truck inventory fell 3,000 units as scheduled downtime at the production facilities to prepare for the launch of the next-generation trucks and SUVs began. At Ford, US inventory fell by 19,000 units to 448,000 units, split between 137,000 cars and 311,000 light trucks. At a 54-day supply to end May, down from a 63-day supply in April, Ford's sales were hit by tight inventory levels. Ford expects to build 690,000 units in the third quarter of 2012. Month-end inventory at Chrysler was up 7,000 units to 352,000 units, roughly a 61-day supply.

It was a very positive month for the industry overall, but the gains by the Japanese manufacturers should be considered in the context of last year's market at this time in the year. The March 2011 earthquake and tsunami that devastated northeast Japan and caused production stoppages for much of 2011 caused inventory and sales to collapse for most Japanese automakers in the last part of the second quarter and most of the third quarter of2011. As such, we are likely to see considerable percentage gains for Toyota, Honda, and Nissan for much of the rest of 2012, as their sales this year are much more normalised than the aberration last year. Seeing a massive 87% gain for Toyota should not be viewed as some sort of immense sales activity on Toyota's part really, but a return to the typical market levels that the company enjoyed before the crisis knocked it back last year. The fact that Toyota has rebounded to its current level demonstrates the brand's continued loyalty and popularity among American consumers.