September U.S. Inventory Sets Up Strong Q4 for Trucks

Although dealers are lean on pickups and North American manufacturers are running plants full-tilt to keep up with demand for CUVs, U.S. light-vehicle inventory entering the fourth quarter is in good shape for the industry to continue the sales success of the first nine months of the year, with volume up 5% from like-2014.

Production levels will remain strong for Small and Large pickups and automakers will continue to push capacity limits on CUVs, augmenting demand for them with more imports.

Light trucks will be flirting with 60% penetration of the market during the final three months of 2015, a level never attained over any 3-month period. In fact, unless incentive activity or fleet deliveries significantly rise for cars, trucks will top 60% of volume in Q4, with half coming from continued record penetration of CUVs. But share for pickups, as well as SUVs and vans, should top year-ago too – also meaning share likely will decline for each car segment group.

LV inventory ended September at 3.41 million units, 3.4% above year-ago and a 3.3% rise from August. Days’ supply increased to 59 from August’s 55, which is a smaller month-to-month increase than in recent years due to shorter reporting periods for September in 2013 and 2014 caused by the first weekend of the month being included in August’s results. The longer reporting period this year pushed sales volume higher, culling more inventory.

September truck inventory of 1.94 million units was 7.0% above year-ago, with CUV stocks up 21%, SUVs rising 6% and vans up 31%, but pickups down 12%. More specifically, stocks in the Large Pickup segment were down 12.9% and Small Pickups were off 2.1%.

Despite year-to-date sales in the Large Pickup segment up 6.3% from 9-months 2014, only Fiat Chrysler US has inventory levels above year-ago. Ford’s large-pickup stocks are down due to retooling at two plants for the new F-150, and its plants are running full-tilt with overtime to catch up.

General Motors has been posting double-digit sales gains most of the year while running lean on large-pickup inventory. Thus, even with less inventory than last year, dealers appear stocked well enough to continue sales gains, albeit smaller, in the fourth quarter.

Finishing off the segment, Toyota Tundra stocks are 55% below year-ago, as Toyota is devoting more production volume to its redesigned Toyota Tacoma small pickup. Nissan Titan inventory is a smidgeon below year-ago, but production is ramping up of a redesigned version that begins deliveries in November.

In the Small Pickup segment, inventory is down due to declines by some slow sellers. Stocks of two of the strong sellers in the segment – the Chevrolet Colorado and GMC Canyon – are above year-ago, and Tacoma production is revving up at two plants to meet higher demand for the new product.

Despite the inventory shortfalls, expect Q4 sales of all pickups to easily best year-ago’s volume and top like-2014’s 15.1% market share, perhaps coming close to 16%.

Except for luxury versions, cars typically record their lowest market share in Q4. Car inventory ended September with 1.48 million units, 1% below like-2014. However, the shortfall from year-ago is in the Large and Luxury segment groups. Inventory of Small and Middle cars are both up, indicating car production will continue to be weak in order to get stocks more in line with demand.

Even with overall inventory in line relative to demand, Q4 sales are likely to drop from the whopping 17.7 million-unit seasonally adjusted annual rate of Q3.

Robust Q3 sales should have wiped out a lot of ’15-model inventory. Without as many excess older model-year vehicles to get rid of, automakers and dealers will be ready to test how much pricing power they have beginning with the new model year in October, and incentives should lighten up for the time being.

Pursuant to that, a cyclical slowdown in October and November is probable, because the SAAR has increased sequentially for three straight months, a rarity even in strong growth years, and is coming off a spectacularly high 18.1 million-unit total in September.

Month-to-month volumes in Q4 will not necessarily be in sync with the SAARs.

October’s volume will be pushed higher because its selling period extends into November due to the month ending on a weekend. For only the second time in the past 15 years, October will have 28 selling days.  Because of October cutting into it, November will have a shorter selling period – 23 selling days vs. 25 a year ago – and volume is expected to fall below year-ago levels. If October finishes with a strong 17 million-plus SAAR, November’s SAAR also might fall below same-month 2014’s total (17.0 million).

Like October, December will have an uncommonly high number of selling days (28) because it extends one more day into January than is typical due to how the calendar falls this year.

December’s extra-long selling period creates the potential to be the highest-volume month in 2015, and will determine if the year ends at 17.1 million or 17.2 million units. If there are some additional spiffs and marketing activity beyond the normal holiday programs, 17.3 million is possible. The fallout from that is sales in 2016 would start slowly relative to the end of 2015.

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