Post-Hurricane Demand, High Inventory to Strengthen Year-End U.S. Sales

The combination of post-hurricane demand and hefty dealer stocks means U.S. light-vehicle sales should top the 17 million-unit level for the third straight year.

With fallout from storm-damaged vehicles lost in Texas and Florida expected to add 100,000 units to new-vehicle sales, demand in the fourth-quarter should start out strong and could end on a high note if excessive inventory remains an issue.

Volume in October will be primed by replacement demand, as well as making up much of the remainder of sales that were delayed because of Hurricane Harvey and Irma. Replacement demand is expected to continue into November, though the impact should be smaller.

October is not likely to match September’s 18.5 million-unit seasonally adjusted annual rate but should be another strong month relative to the annual rate – 16.8 million – 2017 sales were tracking at through August.

WardsAuto expects sales to end the year just above 17.0 million units, but the final total will depend on how much automakers are willing to use incentives for inventory control during Q4.

September’s hefty sales total was boosted both by incentives and replacement demand, and knocked a good chunk of inventory from the excess on dealer lots heading into the month. But inventory still remains 10% to 15% above the estimated optimum level needed to meet underlying demand.

Sept. 30 inventory totaled 3.76 million units, a 2.3% decline from August. The drop is significant, because inventory usually increases from August to September; in fact, the last decline was 10 years ago. The total is 1.9% above like-2016’s 3.69 million units, which until this year was the highest ever for the month.

Days’ supply declined to 64 from August’s 70 and matched the year-ago total. However, the number was driven lower because of September’s artificially jacked-up daily selling rate – days’ supply is calculated by dividing the DSR into the month’s inventory. Adjusting for the skewed DSR, September’s days’ supply was closer to 70. A days’ supply in the low 60s range is optimal for September.

Inventory is expected to be below year-ago levels by the end of the year, but still leaning toward being too high heading into January. That could determine how much of a sales surge there might be in December, if automakers decide to goose incentives to further lower dealer stocks and shore up market share for the year. It also means year-over-year North American production declines will continue throughout the quarter.

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