First-Quarter Demand and Inventory Portend Solid Q2 U.S. Light-Vehicle Sales

U.S. light-vehicle sales ran relatively strong in the first quarter and, pumped by more increases in incentives along with a solid inventory base, should continue to run at or close to an historically high 17 million-unit seasonally adjusted annual rate in the second quarter.

Initial modeling indicates a 16.8 million-unit SAAR in April, but with two fewer selling days than in 2017, volume at that SAAR level will decline from year-ago. An additional selling day in both May and June, which also has an extra weekend over like-2017, will partially offset lost volume in April. However, there are enough headwinds that Q2 sales still are expected to decline from April-June 2017 and continue falling in the second half.

Total LV inventory (4.02 million units) ended March 3.3% below year-ago but was pulled down by a 21.2% decline in cars, which have mostly been slow sellers in 2017 and 2018. Car sales declined 11.5% year-over-year in 2017 and were down 12.3% in Q1-2018.

Inventory for the stronger sellers, trucks, is running 8% above year-ago.

Thus, even though total inventory is below year-ago totals, the higher mix of trucks bodes well for demand in Q2, whereas a year ago dealers were laden with more hard-to-sell vehicles.

March’s LV days’ supply of 68 was somewhat higher than the 64-66 range that is considered optimum for the month, and the gap was caused by both cars and trucks.

Trucks ended last month with a 70 days’ supply, compared with an optimum level of 65-68, but was below year-ago’s 73.

Days’ supply of cars entered April at 65, down from like-2017’s 72 but a healthier level is around 60. Thus, expect both higher incentives and continued hefty production downturns for cars.

Although underlying demand still is declining from its peak in 2016, rising incentives combined with robust truck inventory are positives for continued strong sales – even if below year-ago totals – in the April-June period.

Wards Intelligence still is expecting demand to decline in the second half of 2018 from January-June. Excess replacement demand is weak, interest rates are likely to rise, used-vehicle prices are expected to decline year-over-year for the rest of 2018 and there remains an overall lack of fresh product until 2019.

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