Car Sales in August Could Reach 4.5 Year High
The August new-vehicle selling rate is expected to be the highest monthly rate in more than four and one-half years, according to a monthly sales forecast developed by J.D. Power and Associates' Power Information Network and LMC Automotive.
August new-vehicle retail sales are projected to come in at 1,066,200 units, which represents a seasonally adjusted annualized rate (SAAR) of 12.3 million units (see chart above). The year-over-year growth rate in retail sales continues a double-digit trend for a fourth consecutive month. Retail transactions are the most accurate measurement of true underlying consumer demand for new vehicles.
"August continues this summer's trend of healthy growth in retail sales as dealers work to sell down inventory in time to make room for 2013 models," said John Humphrey, senior vice president of global automotive operations at J.D. Power and Associates. "To date, automakers have been diligent in better balancing production with demand, which has been critical to the improved financial performance for many brands. Going forward, this discipline will be tested as demand looks to cool somewhat through the balance of the year."
MP: The expected strength in new vehicle sales this month is consistent with the facts that: a) rail shipments of motor vehicles year-to-date through mid-August are running 21% above last year, and b) motor vehicle assemblies in July of this year reached a five-year high of more than 11 million units at an annual rate, the highest since June 2007. Despite the ongoing weaknesses in the labor market and an 8.3% jobless rate, we've been seeing offsetting strengths in new vehicle sales all year and now recently strengths developing in the U.S. housing market. If new vehicles sales in August do come in at a four and a-half year high, it would be one more reason to doubt that the U.S. economy will fall into another recession this year.
45 Comments:
I wonder how many of these sales are to the Federal government or are lot filling?
I wonder how many of these sales are to the Federal government or are lot filling?
None. Retail sales are the consumer side of thing. Public purchases are not recorded here. Public and dealership purchases are considered wholesale trade.
Wards auto is saying something similar.
Cool. Good to know. I wonder what the factor is behind the increase in sales. I've read that one potential bubble of the future is in the area of car loans. I suppose one factor might be the decrease in supply for the used car market due to cash for clunkers.
I've read that one potential bubble of the future is in the area of car loans. I suppose one factor might be the decrease in supply for the used car market due to cash for clunkers.
Yeah, low borrowing costs sure are helping things here. On both sides: with borrowing costs lower, dealers need to offer fewer incentives to move vehicles, which means higher profits.
I'm not sure how much Cash for Clunkers would have an effect now that the program is nearly three years old. Maybe some of what would have been used now was sold back then, but not too sure.
There is also the fuel factor. People want to insulate themselves against rising prices, so they are getting better vehicles.
There is also pent-up demand. People are finally upgrading their cars now with the green-shoots of recovery a little bit more greener.
Mark, I follow these very closely, and have the following advice: Do NOT take the preliminary monthly auto sales estimates by JD Power, Edmunds and Kelly Blue Book too seriously. They're frequently off by ~5% (in either direction). Sometimes they get fairly close, but only maybe half the time. The major reason for their discrepancies is they have no idea what fleet sales are doing, which are often considerably more or less than they're estimating. It's OK to look at these estimates as a general guide, but take their numbers with a grain of salt, and wait until the actual numbers come out early the next month.
jesse-
the full vehicle purchase figures look like this:
http://research.stlouisfed.org/fred2/series/ALTSALES
keep in mind that they are annualized (and seasonally adjusted) monthly numbers, which is why they are so volatile.
All this demand, yet GM still continues to suck.
Here is the non-seasonally adjusted data (as reported by Wards Auto):
Monthly number
Smoothed using a 12 month moving total to account for seasonal variations
You are absolutely right, Unknown, but I ran out some different scenarios: Unless auto retail sales has an incredibly bad August (it would have to be one of the 10 worst Augusts on record), then annual Sales would rise to the highest level at least four years (JD's numbers likely differ from Wards, which is why I am being a little vague here).
US auto makers have been stuffing their supply chain in order to boost their sales numbers: http://www.zerohedge.com/news/global-car-maker-channel-stuffing-conspiracy-theory-now-conspiracy-fact
Like all things touched by the state, this prosperity is an illusion.
autodata has been showing 13.8 to 15.1 sales SAAR in months YTD...
http://1.bp.blogspot.com/-5YQfTIyTL9Y/UBl_fgbL7eI/AAAAAAAAOm8/N_vKt5linOs/s1600/VehicleSalesJuly2012.jpg
wonder where the discrepancy is...
Could be a combination of car purchases for college kids and more folks looking buying more fuel efficient models. Any uptick is better than a downward trend.
Let's not forget, everyone, that Keynes was wrong. Even if the sales figures prove to be true, consumer expe ditures do not drive the economy.
Investment does.
Let's not forget, everyone, that Keynes was wrong. Even if the sales figures prove to be true, consumer expe ditures do not drive the economy.
Investment does.
Right, but consumption is a sign of the health of the economy
wonder where the discrepancy is...
Discrepancy between...?
Another viewpoint on the reason for surging new car sales:
""need based purchasing"...
"A key factor driving August auto sales is trade-ins, said Edmunds.com analyst Ivan Drury. “People are trading in cars because they are getting old"
"In 2005, about 40% of new car buyers traded in an old car, with the trade-ins average five years in age, he said. This year, about 50% of new car buyers trade in an old car, with the average age six years.“
There's another interesting factor possibly at play which I read about several months ago: Due to the crash in auto sales in 2008-09, there is now a relative paucity of 2-4 year old used cars, which is a very popular age in which to buy used cars. Because of this relative scarcity of used cars of that popular age, some people are resorting to buying a new car instead.
I can't help but wonder if a similar phenomenon is starting to play itself out in the housing market. Lots of people like to buy an existing house maybe 3-5 years old, but since housing construction started crashing about 5 years ago, there's going to be a relative scarcity of existing houses of that certain desirable age. This could force a lot of people into buying a new house.
Who would have thought an economic crash could basically *force* a relative boom in two important consumer goods 2-5 years afterwards? Go figure.
geoih said...
US auto makers have been stuffing their supply chain in order to boost their sales numbers: http://www.zerohedge.com/news/global-car-maker-channel-stuffing-conspiracy-theory-now-conspiracy-fact
Like all things touched by the state, this prosperity is an illusion.
What are you smoking? Vehicle assemblies are not counted as domestic sales only as inventory. If GM channel stuffing was inflating sales, then it would not reflect a 10% drop in market share to 18% YTD for 2012 from 20% in 2011.
The growth in sales is despite GM. It has come from GM's foreign competitors, specifically the Japanese. Toyota and Honda have been taking away sales from GM. Manufacturing for the Japanese have bounced back from tsunami levels. GM is being throttled.
http://www.freep.com/article/20120802/BUSINESS01/308020215/Ford-GM-sales-stumble-as-Toyota-and-Honda-regain-market-share-in-U-S-
http://blogs.wsj.com/drivers-seat/2012/08/03/general-motors-ad-boss-to-stick-current-marketing-plan/
Unknown said...
Mark, I follow these very closely, and have the following advice: Do NOT take the preliminary monthly auto sales estimates by JD Power, Edmunds and Kelly Blue Book too seriously. They're frequently off by ~5% (in either direction). Sometimes they get fairly close, but only maybe half the time. The major reason for their discrepancies is they have no idea what fleet sales are doing, which are often considerably more or less than they're estimating. It's OK to look at these estimates as a general guide, but take their numbers with a grain of salt, and wait until the actual numbers come out early the next month.
Mark's post is on retail sales forecast. Fleet sales only come into play in total sales(fleet + retail).
"Mark's post is on retail sales forecast. Fleet sales only come into play in total sales(fleet + retail)."
True, but the note of caution I said also applies to retail sales of autos. After all, these forecasts are made based on data only about halfway through the month.
A great example was May's auto sales. Around the 20th-22nd of May (when these forecasts come out), the forecasting outfits said auto sales looked fine, more-or-less similar to April. But when the final numbers came out in early May, they were a big disappointment. Why? Because the usual uptick in sales around Memorial Day never arrived this year. That's a retail phenomenon, not a fleet sales one.
"What are you smoking? Vehicle assemblies are not counted as domestic sales only as inventory. If GM channel stuffing was inflating sales, then it would not reflect a 10% drop in market share to 18% YTD for 2012 from 20% in 2011.
Well said. The funny thing about the dimwits who constantly regurgitate this nonsense (which originated with Zerohedge - where else?) is that they seem to forget GM also has plants in Canada and Mexico, and also imports a few models from Europe and (I think) Korea. GM also exports a lot of cars (largely to Canada and Mexico, but also elsewhere). If GM's monthly auto sales were simply counts of cars that rolled off the assembly line, then it would include cars which were exported, not to mention cars rolling off assembly lines in Canada, Mexico and elsewhere. Nevermind that a lot of these cars are also *sold* in Canada and Mexico. The Zerohedge claim then becomes that GM's monthly US auto sales are really all cars made not just for sale in the US, but also to Canada and Mexico. And why stop there? Might as well include all GM cars rolling off the assembly lines in China, South America, etc. Surely autos assembled in Brazil should logically count as retail sales in the US, even if the vehicle never steps foot outside of Brazil! /sarcasm
Unknown,
You brought up very good points. Domestic production does not equal domestic sales.
I agree on the dimwits. GM's market share loss is not responsible for the increase in retail sales. It's like saying BlackBerry's channel stuffing was responsible for record-breaking smartphone sales, while the smart phone market was taken over by Apple and the Iphone in the last few years.
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Craig Howard says: "Let's not forget, everyone, that Keynes was wrong. Even if the sales figures prove to be true, consumer expenditures do not drive the economy."
That's a ridiculous statement that contradicts mathematical proof and empirical evidence.
Also, you may want to see some Keynesian ideas, including sticky prices and the paradox of thrift.
The U.S. needed a tax cut large enough to jolt the economy into a virtuous cycle of consumption-employment (where consumption generates employment and employment generates consumption).
Large tax cuts worked under Kennedy in '61, Reagan in '81, and Bush in '01.
Also, we see monetary policy has been working in reducing interest rates to historically low levels to stimulate demand, ceteris paribus.
This depression is a period of underconsumption (and underborrowing) after a period of overconsumption (and overborrowing), by U.S. households.
Cool. Good to know. I wonder what the factor is behind the increase in sales. I've read that one potential bubble of the future is in the area of car loans. I suppose one factor might be the decrease in supply for the used car market due to cash for clunkers.
The fleet is getting old and has to be replaced at a certain rate. The trouble is that a healthy auto sector need far more sales than what we have and GM still looks like a very troubled company headed towards bankruptcy.
" - - - Keynes was wrong. Even if the sales figures prove to be true, consumer expeditures do not drive the economy. - -Investment does."
Which is pretty much what Keynes concluded. In other words, you are in agreement with Keynes.
Regarding "channel stuffing":
No business in their right mind will stock up on inventory. It does not make them seem more profitable or more productive. In fact, it is a detriment. Inventory costs resources. If inventory cannot be moved, it weighs on the balance sheet and makes the company look worse. A company with high inventory-to-sales (in other words, their inventories are substantially higher than their sales) is a baaaaaaaaaaaaaaad investment. So, this theory that GM is just ramping up production to look good is illogical and foolish. Can we please not spout it any more? This is worse than the freaking "birther" argument.
Look, Zero Hedge has proven time and time again that he (they?) do not truly understand economic trends or even how to read the information presented to them. They have a viewpoint and torture the data to make it fit (ignoring all other evidence to the contrary. Or, in some cases, making stuff up). Can we please stop citing them?
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Which is pretty much what Keynes concluded. In other words, you are in agreement with Keynes.
Well, no. Keynes said that investment is important, but is driven by demand. That is the idea behind stimulus: demand has fallen so you need to stimulate demand. It doesn't matter where you come from, just get spending going. Then, as spending picks back up, investment will do the same.
The Keynesian model calls for four actions to be taken: interest rates to fall, government spending to increase, taxes to be cut, or some combination of the three. All three of these is designed (in theory) to boost spending: government spending picks up the slack from consumer spending. Tax cuts allow for more money in the pockets of consumers. Low interest rates make saving the extra cash less attractive (a fight against the Paradox of Thrift)
No business in their right mind will stock up on inventory. It does not make them seem more profitable or more productive. In fact, it is a detriment. Inventory costs resources. If inventory cannot be moved, it weighs on the balance sheet and makes the company look worse. A company with high inventory-to-sales (in other words, their inventories are substantially higher than their sales) is a baaaaaaaaaaaaaaad investment. So, this theory that GM is just ramping up production to look good is illogical and foolish. Can we please not spout it any more? This is worse than the freaking "birther" argument.
Look, Zero Hedge has proven time and time again that he (they?) do not truly understand economic trends or even how to read the information presented to them. They have a viewpoint and torture the data to make it fit (ignoring all other evidence to the contrary. Or, in some cases, making stuff up). Can we please stop citing them?
The channel stuffing for GM, the EU automakers, and the Chinese car companies and suppliers has been well established and is real. It is done because of accounting rules that allow GM to claim sales once the dealers are forced to take the vehicles even if GM finances the inventory. The incentive is not optimum returns but gaming the share prices and meeting political goals. Where you are right is the fact that the game can't go on for very long. I suspect that by around this time next year we would have had a number of announcements detailing this little problem.
No. Pipeline stuffing is a conspiracy theory. Honestly, you'd need to be a moron or know nothing about business to buy it. If you want to discuss a serious topic, that is cool, but I am not working another moment of time debating a conspiracy theory. if you want to debate whether or not we've landed on the moon, find another blog.
No. Pipeline stuffing is a conspiracy theory. Honestly, you'd need to be a moron or know nothing about business to buy it. If you want to discuss a serious topic, that is cool, but I am not working another moment of time debating a conspiracy theory. if you want to debate whether or not we've landed on the moon, find another blog.
No. Pipeline stuffing is a conspiracy theory. Honestly, you'd need to be a moron or know nothing about business to buy it. If you want to discuss a serious topic, that is cool, but I am not working another moment of time debating a conspiracy theory. if you want to debate whether or not we've landed on the moon, find another blog.
Dealer inventory has increased substantially. That is a fact that requires no special knowledge of business or economics.
This is not new. Yet, it is a fact that has been quietly ignored by the financial analysts who tend to look the other way when the data has not been supportive of the sustainable recovery narrative. By the way, one of the arguments given a few months ago is to expect an explosion of car sales before the CAFE rules come into effect and the auto makers have to introduce underpowered models into the American market. That means that in a year or so Mark will be spinning another recovery story even if it means that the rules are causing consumers to pull forward future sales while they have the chance to purchase the kinds of vehicles that they want rather than buy what the government expects them to.
"The trouble is that a healthy auto sector need far more sales than what we have and GM still looks like a very troubled company headed towards bankruptcy."
Here are the revenue and earnings reports since Q1 2010 of this company supposedly "headed toward bankruptcy."
Q2 2012: Net Income of $1.5 Billion on Revenue of $37.6 Billion
Q1 2012: Net Income of $1.0 Billion on Revenue of $37.8 Billion
Q4 2011: Net Income of $500 Million on Revenue of $38.0 Billion
Q3 2011: Net Income of $1.7 Billion on Revenue of $36.7 Billion
Q2 2011: Net Income of $2.5 Billion on Revenue of $39.4 Billion
Q1 2011: Net Income of $3.2 Billion on Revenue of $36.2 Billion
Q4 2010: Net Income of $500 Million on Revenue of $36.9 Billion
Q3 2010: Net Income of $2.0 Billion on Revenue of $34.1 Billion
Q2 2010: Net Income of $1.3 Billion on Revenue of $33.2 Billion
Q1 2010: Net Income of $900 Million on Revenue of $31.5 Billion
So, 10 straight quarters of profitability, only 3 of which were below $1 billion. Yeah, this sounds like a company headed for bankruptcy really soon!
BTW, GM's inventories (bottom of page) were a bit high (but not too high) at 79 selling days - which is how you're supposed to look at auto inventories, not the stupid absolute numbers charts that Zerohedge likes to show everyone. But most of that is concentrated in full-sized pickups, which is at a pretty hefty 136 days of supply. Cars and crossovers had only 62 days of supply, which is normal.
I suspect GM is losing a lot of conservative buyers - who are the common types to buy pickup trucks - due to their image as "Government Motors."
"By the way, one of the arguments given a few months ago is to expect an explosion of car sales before the CAFE rules come into effect and the auto makers have to introduce underpowered models into the American market. That means that in a year or so Mark will be spinning another recovery story even if it means that the rules are causing consumers to pull forward future sales while they have the chance to purchase the kinds of vehicles that they want rather than buy what the government expects them to."
The new CAFE rules are being phased in gradually, not suddenly rising in some certain year, and in fact there might even be a delay in implementing them. There's not going to be a sudden rush to buy cars in Year X because of a rise in fuel standards in Year Y, because there *is* no Year Y in which they'll suddenly rise.
BTW, GM's inventories (bottom of page) were a bit high (but not too high) at 79 selling days - which is how you're supposed to look at auto inventories, not the stupid absolute numbers charts that Zerohedge likes to show everyone. But most of that is concentrated in full-sized pickups, which is at a pretty hefty 136 days of supply. Cars and crossovers had only 62 days of supply, which is normal.
Toyota has less than 50 days of supply. Hyundai has less than 30 days of supply. Audi, VW, and Porsche all have lower inventory than GM. No matter how the GM hype is being spun the market has caught on. After seeing its stock above $35 two years ago the shares have steadily declined to $21 and are on their way a lot lower as the company slides towards bankruptcy yet again.
I suspect GM is losing a lot of conservative buyers - who are the common types to buy pickup trucks - due to their image as "Government Motors."
I think that it has a lot more to do with the crappy cars.
The new CAFE rules are being phased in gradually, not suddenly rising in some certain year, and in fact there might even be a delay in implementing them. There's not going to be a sudden rush to buy cars in Year X because of a rise in fuel standards in Year Y, because there *is* no Year Y in which they'll suddenly rise.
I keep thinking of David Henderson's posting in 2009 when he wrote, Under the Obama proposal, which is not yet a fait accompli, the new standards would kick in fully in 2016. It is unclear how they would rise between now and 2016 but it must be the case that they would be much less stringent in 2010 than they would be at their peak in 2016. The standards will cause cars to be smaller, less powerful, less safe, and more expensive. So what will consumers, who have shown what they think of these cars, do? I predict that if anything like Obama's standards get implemented, consumers will start buying powerful cars and trucks at a higher rate in the next few years. Watch for the coming auto boom. And then, of course, as the standards tighten, a major auto bust.
I think that eventually David will be right because a year or two before the standards are put into place sales will increase substantially as consumers purchase what they want rather than what the government thinks they should want. And I suspect that when that happens Mark will be calling it a new boom for automakers even as he ignores the shift in sales for the obvious reasons.
"Audi, VW, and Porsche all have lower inventory than GM."
This was really dumb. Audi, VW and Porsche - even if you add them together! - only sell a fraction of the number of cars GM does, so of course their inventories are going to be small. DUH!
If you look at days of inventory, VW is at 72 days (almost the same as GM), Audi is 32 days and Porsche 42 days. But these are smaller companies with smaller sales so it's probably not fair to compare them to a huge company like GM.
For the Big 3, days of inventory for July were:
- GM: 79 (but again, poor-selling trucks drag that number up)
- Ford: 57 (pretty normal)
- Chrysler: 65 (pretty normal)
The bigger Asian makes are:
- Toyota: 49 (a bit low)
- Nissan: 55 (low-ish side of normal)
- Honda: 49 (a bit low)
- Hyundai/Kia: 21 each (quite low)
Notable smaller Asian makes:
- Subaru: 32 (low)
- Mazda: 83 (higher than GM)
- Mitsubishi is all the way up to 115 days, but they seem to be fading away.
Not sure, but Honda and Toyota might still be catching up from supply disruptions from the earthquake last year. Hyundai and Kia are really hot-selling makes with relatively limited production capacity so it's not surprising they're low on inventory.
So basically, at least in the US, the whole "channel stuffing" argument boils down to GM pickup trucks, VW and a couple smaller Japanese makes.
David Henderson's posting from 2009 is out of date, and given the more recent information on the gradual ramp-up I already posted, his facts are now incorrect. There is not going to be a sudden shift in one year. And frankly, even if there were, auto makers would gradually increase the mileage of their vehicles in the years before that date, to get both themselves and the consumer accustomed to the higher-mileage vehicles. In fact it's already happening. That's why you're seeing so many new hybrids, plug-in electrics, full electrics, 6-speed transmissions, etc. coming into the market the past few years. It's not only a factually incorrect argument now, it's also an irrelevant argument even if it were true.
This was really dumb. Audi, VW and Porsche - even if you add them together! - only sell a fraction of the number of cars GM does, so of course their inventories are going to be small. DUH!
Days of inventory, not number of cars in inventory.
Not sure, but Honda and Toyota might still be catching up from supply disruptions from the earthquake last year. Hyundai and Kia are really hot-selling makes with relatively limited production capacity so it's not surprising they're low on inventory.
Honda and Toyota have run with much less inventory than the American auto makers for years. Their numbers are out of line only for models that are selling less than expected. I read an article a while ago that was blasting China automakers for their high inventory levels. The Chinese were worried about levels that were around 60% of what GM was running yet there was panic.
So basically, at least in the US, the whole "channel stuffing" argument boils down to GM pickup trucks, VW and a couple smaller Japanese makes.
Not at all. Days of inventory have been increasing in a number of lines as GM has forced dealers to take vehicles. While we could see the sector strengthen as the Fed pumps in a lot of liquidity into the economy and the EU opens up the floodgates profits will be hard to make and after any pop that the liquidity provides GM will be heading towards bankruptcy again unless there are real changes made in the company.
n fact it's already happening. That's why you're seeing so many new hybrids, plug-in electrics, full electrics, 6-speed transmissions, etc. coming into the market the past few years. It's not only a factually incorrect argument now, it's also an irrelevant argument even if it were true.
Consumers want what they want, not what the government wants them to want. The Chevrolet Volt, which goes for nearly $40,000 before the $7,500 subsidy, is way too expensive and Fiat-Chrysler is telling investors that it will lose more than $10K on each electric Fiat 500 that it sells. While GM has reported that inventories are down it had to get there by shutting down the Volt line for a few weeks. If the subsidies are cut the sales are expected to fall off a cliff.
As for hybrids, many people will not go back to them as they have proved not to deliver what was promised. Consumers are far better off buying a much cheaper VW diesel. Not only are the vehicle costs much cheaper so are the operating costs.
GM will go under because most of its sales take place in a country in which the government has engaged in top down planning as it moves to change consumer preferences by edict. The margins are too thin for such efforts not to destroy the worst of the automobile players and in this case that is GM at the top and some of the crappy EU and Japanese brands at the bottom.
Ford, GM, Toyota and Nissan share prices are all down. The optimism leaves something to be desired.
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