June is expected to cap the weakest first-half to a year for U.S. light-vehicle demand since 2014. Photo credit: DAVID PHILLIPS
Another month, another drop in U.S. new-vehicle sales.
Analysts expect June to mark the industry's sixth consecutive year-over-year decline, closing out the worst first half of a year since 2014. The slowing market has prompted LMC Automotive and General Motors to pull back their full-year outlooks.
For June, forecasts from LMC, Kelley Blue Book and Edmunds show sales coming in about 2 percent to 4 percent less than a year ago. The projections translate to a seasonally adjusted, annualized selling rate of 16.3 million to 16.6 million, which would be the lowest monthly rate in more than two years.
"With manufacturers continuing to announce production cuts at their plants following weaker consumer demand, it all but solidifies 2017 as a down year," KBB analyst Tim Fleming said.
At this point, with the SAAR falling below 17 million for four consecutive months after topping 18 million in December, "nerves are being tested," said Jeff Schuster, LMC's senior vice president of forecasting. But even the most conservative projections call for 2017 to be no worse than the fifth-best year in history.
"It will be challenging in the second half of the year to keep pace with 2016, so some additional weakness and further risk are expected in both fleet and retail volume, but a year still expected above 17 million units should not be considered a poor performance," Schuster said in a statement.
LMC this week cut its 2017 forecast by 100,000 units to 17.1 million, 2.6 percent fewer than the record 17.55 million vehicles that automakers sold in the U.S. last year.
GM reduced its projection to "the low 17 million-unit" range, after previously estimating that industry sales would be roughly equal to 2016. "A more challenging environment for sure," CFO Chuck Stevens told analysts and reporters on a conference call.
Fleet deliveries, which LMC said are down about 8 percent on the year, are the primary reason sales have fallen short of initial expectations in the first half. GM in particular has significantly cut back on its fleet business, preferring to focus on more profitable sales to individual consumers.
Retail sales, a better measure of the industry's health, are down less than 1 percent so far from last year's record pace. At the same time, the industry's average transaction price climbed to $31,720 in the first half of June, a record for the month and 2.1 percent more than a year ago, according to J.D. Power.
But there are some ominous signs, such as ballooning discounts to keep vehicles moving off dealership lots. J.D. Power, which provides data for LMC, said the industry's total incentive spending rose 12 percent in the first half of the year, to a record $25.2 billion.
The blowout deals are not just on sedans that consumers are shunning en masse. J.D. Power's data shows that incentive spending on light trucks is up 15 percent so far this year.
"For the last few years, SUVs almost seemed to sell themselves," Jessica Caldwell, Edmunds' executive director of industry analysis, said in a statement. "But as the market starts to level off, automakers are having to work a little harder and make the deals a little bit sweeter to hit their sales targets. The silver lining is that SUV demand isn't completely hitting the wall, but even this hot segment isn't immune to the dip the entire market is experiencing this year."
Automakers are scheduled to report June sales on Monday, July 3.
David Lim, a senior analyst with Wells Fargo, said many automakers have been counting on the long weekend leading up to the July 4 holiday get demand back on track. "We believe the industry is throwing in the towel for June and the focus will be on July," Lim wrote in a note to clients this week.
GM, Toyota Motor Sales U.S.A., American Honda and Volkswagen Group of America are projected to gain market share in June, KBB and Edmunds said. Ford Motor Co. and Fiat Chrysler Automobiles are expected to lose share, while the forecasts for Nissan North America and Hyundai-Kia are mixed.