US Light-Vehicle Sales Up 9.0% in July As Market Takes a Breather

United States light-vehicle sales were somewhat mixed in July, with the market's top two players citing deliberate reductions in fleet sales as the reason why they lost ground last month compared with competitors. Overall the market was up 9% year-on-year (y/y) to 1.154 million units in July, and up 14% y/y to 8.426 million units in the year to date (YTD). Japanese automakers again posted massive gains last month, which were really just a restoration of inventory and market position to the levels seen before the March 2011 earthquake and tsunami rocked northern Japan.

General Motors (GM) again led the market last month despite a 6% y/y decline to 201,237 units (up 3% y/y to 1.517 million units in the YTD), citing an intentional reduction in fleet sales as the main reason for the fall. Retail sales declined just 3% y/y, but sales to rental fleet customers dropped 41% y/y, as per GM's warning. Overall fleet sales declined 15% y/y, and some segments saw some increases, such as law enforcement (up 115% y/y) and commercial fleets (up 41% y/y). The company's newest products are doing the best: the Buick Verano registered a healthy 4,235 unit sales last month, while the Chevrolet Sonic sold 6,278 units. Cadillac sales overall were up 21% y/y as all of the brand's new models had a strong month. "Cadillac hit a home run and our newest Chevrolets and Buicks are performing very well," said Kurt McNeil, Cadillac vice-president, US Sales Operations. "Signs of a housing recovery and good news on consumer confidence and household income should help keep the light vehicle selling rate in the 14-million range and drive seasonally higher truck sales as we move toward fall [autumn]."

Ford saw its sales decline as well last month, dropping 4% y/y to 173,482 units (up 5% y/y to 1.314 million units in the YTD) as it too reported declines in fleet sales. Ford's retail sales were up a tepid 2% y/y in July, with certain models scoring well thanks to incentivisation—the Fusion for instance had its best July ever, selling just over 23,000 units, a 21% y/y improvement. However, fleet sales fell 15% y/y—both the Ford Crown Victoria and Ranger compact pick-up, two strong fleet sales models a year ago, are now out of production. These two models alone accounted for nearly 10,000 units missing from Ford's sales last month as opposed to the year-ago period. "Fuel economy continues to be a top consumer purchase driver across our lineup," said Ken Czubay, Ford vice-president, US Marketing, Sales, and Service. "Ford's fuel-efficient F-150 EcoBoost is a favorite among truck buyers returning to the market as new home construction picks up. Cars featuring strong fuel economy are in demand, as well, particularly Fusion with its fifth straight monthly sales record. Fusion's strength positions us well for the fall arrival of the all new Fusion featuring EcoBoost engines, a hybrid and a plug-in hybrid."

Toyota enjoyed a rebound last month along with Honda, with both companies showing the effects of having restored inventory on hand with sales gains that are considerable and which have put to rest ideas that the declines seen in the last two years were permanent. Toyota came in third last month with a 26% y/y gain to 164,898 units (up 28% y/y to 1.211 million units in the YTD), while Honda's sales rebounded 45% y/y to 116,944 units (up 19% y/y to 817,926 units in the YTD). So much of this is down to restored inventory—a year ago, Toyota had almost no Prius units to sell on dealer lots owing to the earthquake and tsunami that devastated the region of northern Japan where so many automakers and suppliers sourced critical electronic components. Some of Toyota's gains are coming through incentivisation as well, not to mention cut-rate leasing on popular models such as the Camry. "Consumers are responding to Camry's strong value and affordability proposition, taking advantage of long-term, low interest rate financing and low lease rates," said Bill Fay, Toyota Division group vice-president and general manager. "Leasing has gone mainstream. For instance the Camry, the best-selling car in America, is benefitting from strong residuals—which allow for leases of less than USD200 a month."

Chrysler also posted yet another extremely good performance in July, its 28th consecutive month of y/y gains. The company posted a 13% y/y increase to 126,089 units (up 28% y/y to 960,157 units in the YTD) just days after posting solid second-quarter profits. All of Chrysler's brands saw sales increases, even Ram, which is making up for the loss of the Dakota mid-size pick-up with improved sales of the full-size 1500 pick-up. The Dodge Journey turned in the best y/y performance of any Chrysler product last month, its sales up 69% y/y thanks to its affordability. The company's mid-size and large sedans also continued to post double-digit percentage gains as the company finds more and more buyers for its improved products.

Outlook and Implications

With a seasonally adjusted annualised selling rate (SAAR) of 14.05 million units, based on the recalculated seasonal factors from the Department of Commerce's Bureau of Economic Analysis, July's US light-vehicle sales were slightly below the upwardly adjusted June SAAR of 14.33 million but in line with IHS Automotive's expectations and the overall market trend of the first half of the year. Although economic growth remains uneasy, the US auto market has proved to be somewhat resilient this year, motivated by pent-up demand, which is apparently being released slowly. In this case a slow release is beneficial as it is helping to provide a floor for monthly sales levels, although like the economy, the automotive market recovery seems to be painfully slow. Lower fuel prices, ageing vehicles, and improving credit conditions are also helping to keep showroom traffic flowing despite the continued headwinds facing consumers.

July marked the first time this year that monthly sales favoured the light-truck sector (making up 50.4% of total volumes). Light-truck sales have recently shown some signs of rejuvenation as fuel prices have fallen, although y/y growth for the sector last month (3.5%) was lower than that in the passenger car segment (14.9%) thanks to the short car inventory last year. Light-truck inventory remains stronger than levels seen within the passenger car sector, so sector sales are likely to improve even further as we move through the second half of the year. Inventory levels for the Detroit manufacturers fell in July as the traditional summer shutdown reduced production for the month. At GM, month-end inventory fell by 38,000 units to 663,000, which equates to a 79-day supply. Month-end inventory at Ford fell by 40,000 units, to 419,000 units split between 134,000 cars and 285,000 light trucks. At Chrysler-Fiat, inventory stood at 342,000 units, a 65-day supply, down from 358,000 at the end of June.

Automakers had a mixed month in July, with some faring better than others. GM had warned that this would be a difficult month, as it made significant fleet deliveries earlier in the year, essentially pulling forward sales that would otherwise have been more spread out over the year. Ford's fleet woes stem from the fact that some of its perennially popular fleet models are simply no longer being sold. The Crown Victoria saw a burst of interest last year as word of its imminent demise came about, with fleet operators and law enforcement buyers snapping up as many as they could before the model went out of production. This means that thousands of units of volume that Ford sold to fleets last year are simply not being replaced this year, and the retail sector is not picking up the slack. In better news, most automakers seem to be selling down stocks of 2012 models, meaning that 2013 models are likely to arrive soon and will not have to compete with older vehicles that are sitting on dealer lots and discounted heavily as companies try to clear out old inventory. Better inventory and production control can be cited as a reason for this, as can slowly increasing demand as buyers trickle back into showrooms to replace vehicles that are now older than they ever have been on average.