Counting Cars

Keeping the 2015 U.S. Light-Vehicle Sales Outlook at 16.8 Million

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A second-quarter surge in U.S. light-vehicle sales will further alleviate the need for bigger summer spiffs to get rid of older stock, meaning lower third-quarter volumes.

It’s both splitting hairs and hair-raising deciding whether to lift our U.S. light-vehicle sales forecast for 2015 from 16.8 million to 16.9 million, or even 17.0 million.

Currently we’re at 16.845 million, to be exact. A few more units and we could round it up to 16.9 million and be more in-line with the industry concensus, which is running between 16.9 million-17.0 million. Frankly, our basic model, before figuring in reality checks, suggests 17 million-plus for the year.

There are some potential headwinds making us hesitate on any changes. But they might not really be obstacles, considering we are only two months into the year with actual results and there is plenty of time for the industry to recover from short-term setbacks.

First, WardsAuto forecasts March U.S. light-vehicle sales will rebound from weather- dampened January-February results to a 16.9 million-unit seasonally adjusted annual rate, leaving Q1 at a 16.6 million SAAR. That’s not a bad start and is well above year-ago’s Q1 (15.7 million), but it means the next nine months will have to run at a 17 million SAAR to get to an even 16.9 million units for entire-2015.

It also means if any quarter falls below a 17 million SAAR, another 3-month period will have to finish above that level to keep on track. All things considered, including taking into account some of the headwinds, which I’ll explain, our projections are Q2 should finish with a 16.8 million SAAR. If that holds firm, the second half of the year will have to run at a 17.1 million rate to reach 16.9 million, which sounds somewhat daunting but not unrealistic.

Getting back to potential drawbacks, other factors related to the inventory mix that put a damper on Q1 will have negative effects in Q2 as well.

One is that production has not kept up with soaring truck sales, especially for pickups and some high-volume CUVs. Truck sales already were rising last summer when they got an extra push from gas prices going into a steep decline. That problem was enhanced this year by some plant shutdowns for retooling, further constraining production. That will have lingering effects in Q2.

Also, manufacturers are enjoying the best pricing power they have had in years, largely because they have slowed production, rather than raise retail incentives to keep inventory in check.

In fact, data from TrueCar shows retail incentive activity waned significantly in the first two months of this year. Part of the slowdown could be a result of the spot-inventory shortages of some big sellers on dealer lots, meaning there is not as much need to wheel-and-deal.

Inventory shortages likely were exacerbated from strong year-over-year fleet deliveries in the first two months of the year. Fleet deliveries are included in U.S. inventory totals if vehicles are in transit, meaning the portion of inventory allocated to consumers, the focal point for retail incentives, might have been leaner than the grand total implies.

To a lesser extent, also contributing to slower Q1 sales by clogging the pipeline were labor issues at West Coast ports, which temporarily halted some parts deliveries to vehicle assembly plants, and limited rail capacity, which caused some slowdowns in shipments of assembled vehicles to retail destinations.

Also putting a strain on production are sales increases in Canada and Mexico, with combined year-to-date deliveries up 12%.

Mexico is a particularly hot market. Sales are up 22% from year-ago, and healthy year-over-year gains are not expected to let up much for the rest of the year. Canada sales are up 3%, although monthly increases are likely to flatten, and possibly decline, later in 2015.

Production and inventory, especially of trucks, should catch up with demand by the third quarter. In the meantime, sales could be limited from a combination of spot shortages of strong-selling trucks and weakening demand for cars. U.S. light-truck sales in January-February are up 15% from same-period 2014, while cars are up a tepid 3%.

February’s 55.5% truck penetration was the highest ever for the month and March likely will post record truck share too.

Conversely, we could be talking about tailwinds, rather than headwinds.

Economic fundamentals such as job and income growth – with disposable income improving through low fuel prices – and business and consumer confidence, combined with the average age of vehicles on the road suggesting mass replacement, could be pointing to a boom year.

Despite the inventory issues, there are enough vehicles in stock to support 17 million-plus SAARs beginning this month. It could be consumers are ready to free themselves from another lousy winter and enjoy the coming warmth in a new car. People might be ready to buy whatever is available, car or truck.

However, a spring sales burst brings back the question of inventory. Automaker’s are restocking pickups and CUVs but still are trimming production of slow sellers.

WardsAuto estimates Q1 North American output will increase just 1% from like-2014, and forecasts only a 2.4% gain in Q2. That’s even with sales penetration of domestically made LVs rising in North America as more overseas-sourced vehicles get replaced with local output.

Even with a 16.8 million Q2 SAAR, we don’t expect there will be enough inventory to support as much of a summer sell-off as usual of old model-year vehicles in time for the ’16 models, most of which will start sale around October. A Q2 surge beyond 16.8 million only will further alleviate the need for bigger spiffs to get rid of the older stock. Both situations translate to lower sales volumes in Q3.

If spring sales take off beyond expectations, automakers could raise production levels. However, if manufacturers want to continue seeing their ATPs rise, they will be more interested in ensuring inventory of ’15 models depletes over the summer.

Nevertheless, 16.9 million is quite possible, and 17 million also is a possibility. For the moment, we’re sitting on our 16.845.

hstoddard@wardsauto.com

 

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What's Counting Cars?

Blogs and commentary about automotive data, industry trends, and the future of the auto industry.

Contributors

John Sousanis

John Sousanis oversees WardsAuto data operations as Director of Information Content, and is Ward’sAuto sales analyst. Follow John on Twitter @CountingCars.  

Haig Stoddard

Haig Stoddard is a veteran automotive industry analyst. His current focus is North America production and longterm sales forecasting.
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