Robust January U.S. Dealer Inventory Foreshadows Strong February Sales

U.S. light-vehicle inventory remained in good stead for sales to continue growth in February and to serve as a jumping board for potentially stronger demand in the spring.

Automakers ended January with 3.699 million units in inventory, a 4.2% increase from the prior month and 4.0% above year-ago. A first pass at February’s U.S. sales outlook indicates a seasonally adjusted annual rate of 17.6 million units, a slight improvement on January’s 17.5 million, and well above year-ago’s 16.3 million.

LV days’ supply climbed to 78 on Jan. 31 from 61 the prior month, but was slightly below year-ago’s 81 – though the year-ago number was slightly elevated because poor weather took a small chunk out of sales, which were made up later in the year, but left a higher inventory total.

The projected SAAR equates to volume of about 1.35 million units, a sharp increase on same-month 2015’s 1.25 million, and would lift the year-to-date total to nearly 4% above year-ago. Sales volumes should continue outdoing the same year-ago period at least until May, when the month has two fewer selling days than in 2015.

Assuming no issues from bad weather, the month-to-month Q1 SAARs should be relatively stable, and WardsAuto expects the SAAR to rise in Q2 from January-March.

With inventory heading into February at its highest level in 11 years for the period, there should be no major hindrances to sales from lack of product on dealer lots. There are some areas in the hottest-selling segments, mainly CUVs, where manufacturers are straining to keep up with demand, but overall the stock is there to meet dealer needs.

Truck inventory ended January at 2.11 million units, 12.4% above like-2015. Days’ supply was 76, somewhat lower than average for the month, but relatively even with year-ago’s 77.

CUVs, which will record another double-digit sales gain this month (based on daily-selling rates), as well as record-high penetration for February, ended January with 982,400 units in stock, 19.3% above same-month 2015.

Among other truck sectors, inventory of pickups, the next biggest truck segment group behind CUVs, was up 9.7%. Additionally, SUVs were up 6.9% – not as robust as pickups, but in line with demand; Small Vans, due to a surge in January deliveries of FCA and Toyota’s minivan, were up 4.3%; and Large Vans were up 2.0%.

Conversely to hot-selling trucks, the industry is doing a good job of culling inventory of slow sellers – mainly cars – mostly through slower production.

Car sales have declined year-over-year in six of the past seven months, and inventory slid to 5.5% below year-ago in January. However, some cutting still is needed on the car side.

Days’ supply of cars ended January at 81, down from 85 a year ago, but still slightly above a healthy range for the month of the mid to high 70s. Jan. 31 stocks totaled 1.586 million units, a 3-year low.

Car penetration is expected to continue declining significantly as long as gasoline prices remain stubbornly low. Competition in the two biggest car segments, Upper Small and Lower Middle, is heating up as they shrink, and even more so when segment leaders introduce new or redesigned products.

The redesigned Honda Civic stirred the pot in January when it took 19% of the Upper Small segment, compared with 12% a year ago. Plus, the redesigned Hyundai Elantra is hitting dealer lots, and the segment will get more interesting when deliveries of the new Chevrolet Cruze begin in the spring.

The situation is similar in Lower Middle. Segment penetration of the Chevrolet Malibu, redesigned for ’16, increased to 10.1% from 7.5% in January 2015. Also, the redesigned Kia Optima, although sales were down in January, is coming off a big increase in Q4 2015 and putting pressure on the competition.

Both segments together still account for 25% of the market. Inventory is below year-ago levels for both, but because of the severe decline in demand, more reductions appear on tap through additional production slowdowns and increased marketing initiatives.

Rounding out cars, the Luxury Car group, which accounted for 6.3% of January’s LV sales, compared with 7.2% a year ago, likely will undergo more inventory-cutting moves of some kind, too. While automakers have brought inventory down from year-ago levels for the other car groups, inventory of luxury cars went into February up 3.1% from like-2015.

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