Most automakers will be reporting May sales next Thursday, and the news is not expected to be very good, at least on the sales volume front. A combination of higher interest rates on vehicle loans and higher prices is forecast to yield a seasonally adjusted annual rate (SAAR) of total sales of around 17 million units.
J.D. Power and LMC Automotive analysts have forecast a SAAR of 17 million vehicles for May, with retail sales dipping from 1.27 million last year to 1.23 million units this year. The May 2018 SAAR totaled 17.20 million units. Last month, retail sales totaled 1.33 million units — and this is why sales tumbled in April.
Thomas King, senior vice president of data and analytics at J.D. Power, noted that May is a bellwether month for how auto sales will turn out for the year. The expected decline in May sales has raised manufacturers’ inventory levels, and they responded by raising incentives for the Memorial Day weekend in hopes of attracting more buyers.
Dealer inventory sat in showrooms and on lots for 74 days on average before being sold in May. That’s the highest level in 10 years, when the industry was coming to grips with the Great Recession. Nearly a third of vehicles sat on dealer lots for 90 days or longer before being sold.
All that said, transaction prices continue to rise. J.D. Power expects the average new vehicle price in May to reach $33,457, the highest on record for the month and up 4% ($1.345) compared with May of 2018. Car prices are up 3.0% to an average of $27,259, and light trucks and sport utility vehicles have seen a 4.0% increase to $36,388. Sales of vehicles costing less than $30,000 dropped by 5.7% year over year, more than double the overall sales decline of 2.1%.
Average incentive spending per unit to date in May is $3,722, up from $3,697 during the same period last year and, for the year through mid-May, light trucks and SUVs accounted for almost 71% of all new vehicle sales.
While sales volumes remain near historic highs, pressure is mounting on the industry, according to Jeff Schuster, president of LMC Automotive’s Americas operations and global vehicle forecasting: “Chief among these is vehicle affordability concerns, which outweighs the strong economy and record-high consumer sentiment that otherwise should portend continued growth in U.S. auto sales. Despite these positives, some consumers have decided to either forego a new-vehicle purchase by remaining in their existing vehicle or else have shifted to the used-vehicle market.”
When GM reported first-quarter sales in April, the company posted a decline of 7% year over year (but higher prices on pickups), although the average sales price was up by $8,040 per vehicle.
Ford also reported a 1.6% first-quarter drop in sales, with passenger car sales down 23.7% in the quarter while truck sales rose by 4.1% and SUV sales rose 5.0%. The average selling price for the company’s F-150 pickups was $47,454.
Even with those strong numbers, there are serious questions about Ford’s ability to grow on its own. The proposed merger between Fiat Chrysler and Peugeot may force America’s last legacy automakers, Ford and GM, into one another’s arms.