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April 23, 2010

US: Light vehicle market peppy; production rebounding

The US light vehicle market is continuing to maintain a gradual recovery and North American production levels are rebounding strongly on the back of low inventories and higher sales, according to market analyst firm JD Power.

The US light vehicle market is continuing to maintain a gradual recovery and North American production levels are rebounding strongly on the back of low inventories and higher sales, according to market analyst firm JD Power.

JD Power says that April’s new vehicle retail selling rate is expected to improve slightly on March, supported by increased shopping early in the month and incentive programmes.

April new vehicle retail sales are expected to come in at 804,200 units, which represents a seasonally adjusted annualised rate (SAAR) of 9.8m units. Compared with April 2009, retail sales are projected to increase by 22% in April 2010 and the selling rate is expected to increase by 1.8m units.

“While new vehicle retail sales in April are benefiting from the continuation of March’s incentive programmess, average incentives per vehicle are substantially lower, at USD2,800, compared with USD3,400 one year ago,” said Jeff Schuster, executive director of global forecasting at JD Power.

“Compared with March, incentives are down by approximately USD200, which suggests that the likelihood of an outright incentive war is now lower. This decline in incentives, due to a lower percentage of previous-year models in inventory this year, and the upturn in volume from last April have created a healthier environment — which is consistent with the improved first-quarter financials being reported.”

Fleet sales are expected to pull back slightly from the strong pace in the first quarter of 2010, but remain significantly higher than one year ago. Fleet volume is forecasted to total 205,000 units for the month — up 28% from April 2009.

Total light vehicle sales for April are projected to come in at 1,008,800 units — an increase of 23%  compared with one year ago.

April’s total SAAR is projected to come in at 11.5m units, down slightly from March, which reflects a normalisation in the fleet mix to 20% from higher levels earlier this year.

North American Production

Production in North America continues an upward trend from low levels last year, with volume in March coming in at 1,084,000 units – 60% higher than one year ago. Production in the first quarter of 2010 ended at nearly 2.9m units– 71% higher than the same period last year.

Looking forward, the second quarter of 2010 is projected to be up 56%, compared with last year, with volume at 2.8m units. Inventory was at a 53-day supply at the beginning of April – less than the industry norm of a 60-day supply.

“The concern that the increase in production in the first quarter would outpace the selling rate – and create an inventory glut – has subsided,” said Schuster.

As a result of low inventory and a robust selling rate, JD Power is increasing its North American production forecast for 2010 by 3% to 11m units. This represents an increase of nearly 30% from 8.5m units in 2009.

With the increase in production, capacity utilisation in North America is expected to improve to 63% in 2010 from 47% in 2009.

Sales Outlook

However, JD Power was cautious on the sales outlook. While the sales pace remains stronger than at the start of the year, the economy is in an uncharacteristically slow recovery, it said.

In addition, the manufacturing sector, including the auto industry, is still rebuilding diminished inventory levels. Given these offsetting factors, JD Power’s sales forecast for 2010 remains at 11.7m units for total sales and 9.6m units for retail sales.

“Consumer confidence has recently picked up, but it remains low, due in part to an unemployment level still at 9.7 percent,” said Schuster.

“However, the outlook is improved from where it was at the end of 2009, and the industry is now able to focus on moving forward, rather than worrying about surviving.”

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