All posts by Mary Shell

Mary Shell is a freelance business journalist based in Brookyn. She contributes to The Local - Fort Greene and Clinton Hill. You can also follow her work on additionallypleasenote.tumblr.com.

April Auto Sales Up

Industry analysts are expecting a bright start to second quarter auto sales, with April generating a seasonally adjusted annual sales rate (SAAR) of up to 14.5 million vehicles.

While showing a decrease from last months’ total sales of 1.4 million – data collected by Truecar.com estimates 1,195,809 vehicles sold, a solid 3.4 percent increase over sales in April 2011.

“I’m inclined to think that second quarter is going to pick up speed,” said Bill Cheney, chief economist for Manulife Asset Management.

With gas prices dropping back down, Americans will continue to shop around for smaller, fuel-efficient replacements for their aging autos – many of which are between 10 and 11 years old.  And while incentive spending has decreased since March, General Motors and Chrysler are offering an average of over $3,000 per vehicle – so there are plenty of good deals to be found on the retail side.

Additionally, the economy added 120,000 jobs and unemployment appears to be holding steadily at 8.2 percent.  This means consumer confidence is up and will join forces with warm weather to continue fueling sales.

As usual, GM appears to be leading in unit sales with 209,399 cars and light trucks sold, with Toyota and Ford Motor Company close behind at 183,096 and 181,898, respectively.

While GM will likely maintain the largest slice of the market share at 17.5 percent, Toyota may edge out Ford at 15.3 percent by a tenth of a percentage point.  All together, the big three will capture 48 percent of the U.S. market share.

Chrysler, called the auto industry’s “come back kid” earlier this year, will continue to show strong improvement.  Estimates put sales for the former auto giant at 138,025 – a 17.7 percent year over year increase.  The company is expected to take about 11.5 percent of the domestic market share.

American Honda and Hyundai/Kia are battling for around 9.5 percent of the market share each – with Honda selling just over 115,000 vehicles and Hyundai/Kia selling close to 113,000.  But Hyundai may be the real winner – offering an average incentive of $1,223, about half of what Honda spent per vehicle.  And with the highest average increase in ticket price over the last year, Hyundai/Kia is even more profitable.

Volkswagen will sell over 40,000 vehicles – continuing it’s slow but steadily increasing share of the U.S. market to 3.6 percent, up from 3.4 in March.

Even on the low end of the monthly forecast estimates, Joe Brusuelas, a senior economist for Bloomberg, L.P., kept a  positive attitude about his predicted SAAR of 14.1 million vehicles.

“Sales will remain solid [throughout the year],” he said.

U.S. Auto Sales Forge Ahead in March

U.S. auto sales in March may have fallen short of economists’ predictions, but they did not disappoint. Total first quarter sales were up over 13 percent from 2011, with General Motors, Ford Motor Company, and Chrysler claiming over 27 percent of the domestic market share.

“It was the best quarter since ’08,” said Michelle Krebs, a senior analyst for Edmunds.com.

Economists and industry executives continued to credit the strong sales to improving availability of credit, increased demand for fuel-efficient vehicles, and good weather.

“I still think we’re dealing with a very robust vehicle sales number,” said Michael Brown, an economist for Wells Fargo. Brown is one of the few to remain skeptical about a solid industry-wide recovery.

“Personal income gains have been pretty sluggish,” Brown said. According to Brown, that was just one of several indicators that were not delivering well enough to sustain the elevated auto sales from the first quarter. “We are kind of back,” he said.

But many disagree with Brown.

William Cheney, and chief economist for Manulife Asset Management, acknowledged that while sales were at their highest in years, an SAAR of 13 million wasn’t what it could be. But, he said, there is still lots of room for growth.

“The normal expansion rate would be something closer to 16 million,” he said. And, he added, “I’m inclined to think that the second quarter is going to pick up speed.”

Toyota clocked in at just over 200,000 vehicles, joining GM and Ford in the top three sellers.

American Honda Motor Corporation, Nissan, and Chrysler were close behind with sales ranging from 126,000-163,000, respectively.

Volkswagen continued it’s expansion, selling a total of 48, 425 vehicles in March – a 30 percent year-over-year increase.

One thing everyone can agree on is that Americans are moving away from large vehicles and purchasing smaller, more fuel-efficient vehicles.  Despite claims of success surrounding the Ford Fusion and the Chevy Cruze, imports are still getting plenty of attention in the U.S.

“The shift in preferences is favoring imported cars,” said Joe Brusuelas, a senior economist for Bloomberg, L.P.

The top three cars of March included full size pick up trucks from Ford at over 58,000, followed by the Toyota Camry and Nissan Altima, which sold just over 40,000 each.

The Ford F-150 was noted for its fuel-efficiency in 2011 by the EPA. Fuel-efficiency has been a critical consideration for consumers, according to a Ford Executive, Ken Czubay.

“Fuel economy was the name of the game in March, as it had been in the 1st quarter,” said Czubay, the Vice President of U.S. Marketing, Sales and Service. “[The Ford] Fusion had its best sales month ever,” he said.

 

GM Won’t Be No. 1 Forever

General Motor’s days at number one in market share are numbered in the U.S. But sales tactics are not the problem.

On average, Americans have hung on to their current vehicles for over ten years. In the face of rising gas prices, they will be looking for more than high incentives when finally purchasing replacement cars and trucks.

Sharon Alagna, a Los Angelas resident said she and her husband focused almost entirely on fuel-efficiency when shopping for a new car.

“That was the most important thing on my list. Especially living out here,” she said.

The fact that GM relied more heavily than its competitors on incentives to move vehicles in February– especially in their Chevrolet and Cadillac brands – was a bad sign, said Joseph Brusuelas, of Brusuelas Analytics.

Brusuelas echoed the sentiments of other analysts who claim that rising oil prices will push consumers towards more fuel-efficient options.

GM is far from out of the woods, Brusuelas said. He pointed out that in February, GM offered the highest average incentives per vehicle among the top U.S. manufacturers – $3,254, with the Volt getting both government and manufacturer sponsored discounts. The dual incentive on the vehicle underscores a lack of demand for it, he said.

“If they have the right products, they won’t have to have the incentives,” he said. But the right products did not include the company’s troubled electric hybrid, the Volt.

The Volt has been slow to catch on. Just over 1,000 were sold in February, following some bad publicity and safety recalls.

In contrast, Chrystler’s average discount per vehicle was $2,363, and Ford’s was $2,795.

No matter, said Don Johnson, a GM executive. He argued that GM was in an excellent position to provide fuel-efficient options in the case of long-term hikes in gas costs.

GM’s Chevrolet brand did especially well in February, said Johnson in a conference call earlier this month. Chevy passenger cars sales had increased by 13% compared to last February, including 20,427 Chevy Cruzes, he said. Mr. Johnson attributed the Cruze’s popularity to fuel-efficiency.

In the early sixties, GM held a full 50 percent of the U.S. market share. That has dwindled over the years as Chrysler, Honda, and Toyota gained momentum in the 80’s and 90’s.

In the last ten years, GM’s market share has dropped from 28 percent to almost 19 percent. In contrast, manufacturers such as Nissan, Volkswagen, and Hyundai have seen gradual increases, despite recessions and natural disasters. These companies may gain momentum as they expand manufacturing operations within the U.S.

Volkswagen, for example, has opened a plant in Chattanooga, Tenn., effectively avoiding a loss related to exporting costs. Volkswagen has climbed from 1.76 percent of the U.S. market share to 3.39 since 2005.

“The pie is being sliced up a lot of different ways,” said Michelle Krebs, a senior analyst for Edmunds.com. “Nobody’s going to dominate.” In the long term, the best strategy will be to offer the best product, Krebs said. And, she argues, Americans have that going for them with the Chevy Cruze and Ford Focus.

Too Soon to Celebrate Increased Auto Sales

February auto sales may have surpassed expectations, but it’s too soon to declare a new trend.  February’s seasonally adjusted annual rate (SAAR) is projected to exceed 15 million – the highest estimate in four years.

Total light vehicle sales were up 15% from last February, following an 11% year-over-year increase in January.

GM sold 209,306 units in February, the most of any company, with Ford close behind at 178,644.  Chrysler continued its striking come back with a 40.4% increase over sales in February of 2011, according to an AutoData Corporation report.

Toyota and Honda saw gains of about 12% over last February, and Nissan finished close behind, selling a total of 106,731 vehicles.

Volkswagen, which has held a small but steadily increasing portion of the market share over the last six years, increased its sales by nearly 34%.

“Admittedly, these are very strong readings,” said Michael Brown, an economist for Wells Fargo LLC.  Brown said he would like to see another two to three months of similar growth on top of January and February’s results before calling the numbers a new trend.

In a conference call Thursday morning, Don Johnson, U.S. vice president of sales operations for GM credited the company’s strong performance to improved economic conditions – including lower unemployment rates and better availability of credit.

Johnson said that fleet sales constituted about 25% of the company’s overall sales – a percentage GM will aim for throughout the year.  He also said that higher gas prices were driving up demand for more fuel-efficient vehicles.

Ken Czubay, vice president of Ford echoed this theory on Ford’s Thursday morning conference call.

“Customers are recognizing Ford for investing in new vehicles that deliver top fuel economy,” Czubay said.

But it remains to be seen whether or not rising gas prices will motivate U.S. consumers to trade in their aging clunkers en masse.

“On the whole, the auto fleet is unusually old,” said William Cheney, Chief Economist at Manulife Asset Management. This phenomenon has created a backlog of demand for new vehicles, he said.

January’s low retail sale numbers for cars and auto parts told a different story.  Buyers did not demonstrate a willingness to spend money on big-ticket items.  If low retail auto sales continued through February, a number of these cars will sit on dealership lots, undermining a positive growth trend.

Data released by AutoNation, a major chain of dealerships showed an increase in sales, but the total amount sold was just under 20,000.  With over 1.1 million vehicles sold by manufacturers last month, it will take more than fleet sales to get the inventory moving.

“[February] could just be a randomly good month,” Cheney said. But, he added, “It is good news.  There’s no question about that.”