US automakers’ strategy to scale back discounts in August is a sign they’re willing to maintain some price discipline, even if it raises the chances industry-wide annual sales will fall this month for the first time in seven years, a media report said.
According to Bloomberg, August reports expected to start coming in on Thursday (1 September) may show a seasonally adjusted annual sales pace (SAAR) of about 17.2m cars and light trucks, according to the business newswire’s survey of analysts, down from 17.9m in July that was the highest of the year. Incentives were lower than in July, when General Motors offered 20% cash back on several Chevrolet models, according to vehicle-shopping website TrueCar.
Bloomberg said automakers aren’t chasing sales at any cost, a practice that helped force GM and Chrysler to restructure through bankruptcy in 2009. While discounts have, at least on paper, crept back up to pre-recession levels, transaction prices are at a record high as buyers opt for bigger vehicles with better interiors, electronics and driver-assist features. With that additional profit opportunity, carmakers are not too concerned if the record streak of sales increases ends.
“It may or may not be a record but, look, any time you’re above 15m is good,” John Mendel, Honda Motor’s head of US sales, told Bloomberg. “I’m bullish on the rest of the year.”
With the discounts trimmed back, industry-wide sales may have fallen about 3.5% in August, according to the average estimate in the Bloomberg survey. Among the projected declines are 8.2% for Ford, 4.9% for GM and 6.6% for Volkswagen’s VW and Audi brands. GM said on Tuesday its sales would probably be down 5% to 6%.
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Buyers continue to favour pickups and sport utility vehicles. Light trucks, which also include minivans, probably rose to 59% of all sales in August, from 56% a year earlier, Goldman Sachs told Bloomberg.
Truck demand is helping Fiat Chrysler where deliveries are predicted to rise 5%, compared with year-earlier results revised last month after dealers and federal regulators called its reporting practices into question.
Honda has bucked the trend with car sales up 6.8% to the end of July – more than double its 3.3% gain for light trucks. Deliveries of the redesigned Civic rose 18%, overtaking the Toyota Corolla, while sales of the refreshed Accord rose 5.8%, cutting the rival Toyota Camry’s lead almost in half. For August, analysts estimated Honda’s sales climbed 1%.
“We’re not doing it with incentives,” but rather with improved models, Honda’s Mendel told Bloomberg. “Great product still wins.”
Meanwhile, Kelly Blue Book (KBB) said US new vehicle sales would decrease 2% year on year to 1.54m units this month, for an estimated 17.3m SAAR.
“Overall, sales are expected to remain steady in the mid-17m SAAR range, despite a small drop in volume for August 2016,” said KBB analyst Tim Fleming.
“The mix of sales is divided, with demand for utility vehicles continuing to grow at the same time that car sales are falling.”
He cited key factors including increased fleet penetration in 2016 combined with flat retail demand, rising incentive spend from automakers, and used car prices, which have yet to respond to the growing supply of off-lease vehicles.
“Any changes to the trajectory of these factors could speed up the eventual decline in new car sales for the industry.”
KBB’s full-year forecast is sales in the range of 17.4 to 17.8m.
General Motors is expected to post volume declines for the fifth consecutive month, as KBB projects sales to decline 5%.
“General Motors has lost nearly a full point of market share this year, although this is fully attributable to reduced rental sales, which are less profitable,” said Fleming. “In fact, GM has gone from the top automaker of rental vehicles to fourth this year which is part of their push to focus on strengthening residual values and profitability rather than boosting sales totals.”
Hyundai-Kia could gain the most market share this month of all major manufacturers and are projected to increase sales 2%. Crossovers like the Hyundai Santa Fe and Kia Sportage will help drive these increases, while cars like the Kia Optima and Kia Soul are trending down.
Compact utility vehicles should grow market share to more than 19% in August 2016, as consumer demand for these models continues to build. While the projected 4% growth might not seem like much compared to the segment’s double-digit growth in recent years, it represents a significant amount of volume given its position as the top segment in the market and growth here is helping offset the weakened demand for cars.
On the flip side of the coin, the mid-size car segment, which was the top selling segment just a few years ago, is now extremely soft and KBB projects the segment will drop 17% this month. Analysts anticipate nearly all models to show declines, with the top losses coming from the Accord and Chrysler 200.