U.S. Auto Sales Keep Falling, But The Industry's Health Is Improving

U.S. auto manufacturers reported a seventh consecutive month of year-over-year sales declines on Tuesday, but the outlook may not be as dire as the numbers indicate: Car companies are meanwhile shifting their business toward a more profitable mix of models, customers, and incentives as the industry enters the “post-peak era.”

New vehicle sales slid 7% in July, led by double-digit declines at General Motors and Fiat Chrysler, extending an industry-wide decline that started in January. However, the country’s biggest car companies also said that they are responding to the slowdown by culling less profitable practices including dealership incentives, production at certain plants, and low-margin sales to fleet companies and rental shops.

“We had a run of seven years of year-over-year growth,” said Michelle Krebs, senior analyst at Autotrader, noting that last year’s sales topped 17.5 million cars and trucks, compared with an annual average of 14.3 million for the two decades prior. “We’re still at a very high level of sales. The sky is not falling; the sales are not collapsing. Rather, car companies are making a deliberate decision not to sell at a discounted rate.”

 

The overall economy, employment rate, and consumer confidence will continue to support sales of new and used cars and trucks, even as interest rates increase. Companies including General Motors said pulling back on fleet sales encourages stable, long-term growth because the discounted sales hurt residual values and undermines the ability to offer attractive lease deals.

“We have strategically decided to reduce car production rather than increase incentive spending or dump vehicles into daily rental fleets, like some of our competitors,” said Kurt McNeil, U.S. vice president of Sales Operations, at GM.

GM’s sales fell 15.5% in July, with a steep drop in car sales offset by sales of larger vehicles including the Chevrolet Equinox, GMC Acadia, Buick Envision, and Cadillac XT5, which each reported best-ever July performance. Last month, the automaker said that it’s considering curtailing production of six models including the Chevrolet Volt as it cuts shifts at plants that make smaller cars and ramps up production of crossovers.

Ford Motor Co. reported that overall sales dropped 7.4%, partly due to a double-digit decline in fleet sales. Passenger car sales for Ford and its Lincoln brand plunged 19% due to softer demand for compact cars like the Fiesta and Fusion, but the company’s overall performance was lifted by a 10% gain for its bestselling F-Series trucks, as well as sales of its larger SUVs.

Across the industry, sales of larger vehicles offset declines in consumer interest in smaller cars. Sales at FCA fell 10.5%, with sharp declines for Chrysler and Dodge cars. Its Ram Trucks division eked a gain of .1%.

Toyota was the only major automaker to post a gain in July. Sales rose 3.6%, led by the Toyota Highlander SUV’s best July performance. Honda’s sales fell 1.2%, boosted by an 11% increase for the Civic sedan, the bestselling car in the U.S., and a 32% surge for the HR-V compact crossover. At Nissan, crossovers, SUVs, and trucks set a July record, rising 5% and offsetting a 12% drop in car sales. Mazda’s CX-5 crossover had its best ever July, leading the brand to an overall 3% sales decrease.

“The story for July is nothing new,” said Akshay Anand, executive analyst for Kelley Blue Book. “SUVs are up, cars continue to decline, and sales are clearly done growing at breakneck speeds. It's promising to see some manufacturers unwinding fleet sales for long-term health purposes, but incentives bear watching, as they are still at or near high points for many vehicles.”