Vehicle sales are down for Detroit Three, but prices are rising
Detroit — Auto sales slowed in the first half of 2019 compared with a year earlier and industry experts say the back half of the year could be bumpy and unpredictable.
The good news for automakers is their new vehicles are commanding higher prices from consumers, reaching new record levels.
The Detroit Three weathered trade wars and tariffs, job cuts, factory idling and rising costs of new technology through June. The firsthalf sales results were mixed, with the Detroit Three’s total sales down, mitigated by strong sales in pickups and SUVs.
Industry experts say sales will continue to slow and market disruptors could surface that will likely lead to lower annual car sales this year versus last year.
“If the first half was volatile, are you expecting the second half to be calm?” said Cox Automotive Chief Economist Jonathan Smoke. “You’d be out of your mind, just considering the number of things facing the economy and the auto market combined.”
Ford results
Most automakers reported sales Tuesday, but Ford Motor Co. reported its second-quarter results Wednesday. For the quarter, Ford sales, including its luxury brand Lincoln, declined by 4.1% to 650,336 vehicles and sales through June are down 2.9% to 1.24 million. The results were supported by strong pickup sales and a 1.3% gain in Lincoln sales through June.
Ford saw its biggest decline come in the car segment where, year-to-date, sales are down 22.5% compared with the same period last year. But its pickup sales are up 5.9%. Sales of the F-Series through June were flat at 448,398, but heavy-duty pickups saw a 52.8% increase.
For the automakers’ total sales year-to-date, Fiat Chrysler Automobiles reported a dip of 2% to 1.1 million vehicles compared with the first half of 2018. General Motors reported a 4.2% decline in total sales to 1.4 million vehicles sold.
Among other automakers reporting sales Tuesday, Nissan Group, which includes its luxury brand Infiniti, reported year-to-date sales down 8.2% to 717,036. Likewise, Toyota Motors North America, which includes Lexus, reported its sales through June down 3.1% to 1.15 million. Subaru reported its sales are up 5.2% to 339,525 through June. American Honda reported, through June, its sales dropped 1.4% to 776,995.
Automakers saw transaction prices on both cars and light trucks continue to rise and set records so far this year.
In fact, Ford said its transactions prices in the second-quarter were up for pickups and SUVs compared with the year-ago period. The average transaction price for an F-Series pickup was $47,500, up $1,200 from the year earlier.
According to the latest National Automobile Dealers Association Average Dealership Financial Profile Series from April 2019, the average new-vehicle transaction price was $36,642, up 3.3% compared with the year-ago period. Transaction prices on used vehicles sold by franchised dealers, on average, rose 3.8% to $20,979.
The average monthly payment gap between new and used vehicles continues to widen, which NADA said will likely push consumers to the used market.
Pickups and SUV sales remain a bright spot for automakers, said Tyson Jominy, vice president of data and analytics Consulting at J.D. Power. That, along with rising transaction prices, means more profitable sales even as volume declines.
Total automaker revenues are expected to be up over 1% compared with the prior year, largely driven by a 4% growth in average transaction prices, Jominy said.
But it’s at the lowest end of the market where there is the “most dramatic story,” Jominy said. Year-to-date, he said, sales for vehicles with transaction prices below $20,000 are off 21% after falling 19% in 2018. But for vehicles priced $30,000 to $50,000, sales are up 5% and those priced over $50,000, sales are up 9%.
GM believes the industry will sell a “healthy 17 million units” this year, said GM’s Chief Economist Elaine Buckberg.
“The U.S. economy continues to grow at a healthy pace. Jobs are plentiful and inflation remains low,” said Buckberg. “Auto demand was better than anticipated in the first half and we expect strong performance in the second half of the year. If the Fed cuts rates, as widely expected, lower financing costs will provide further support to auto sales.”
Fewer new car sales
But Cox Automotive predicts carmakers will sell substantially fewer new cars for the year. It estimates auto sales will be 16.8 million new cars, down from the 17.3 million purchased last year amid unstable markets and political, economic and labor uncertainties.
NADA’s Senior Economist Patrick Manzi also puts the annual retail sales estimate at 16.8 million, saying, “We remain confident, barring any unexpected shocks, that franchised dealerships are on track to sell 16.8 million new light vehicles in 2019. The downside risks to our sales forecast include the fallout from trade disputes, including potential tariffs on autos and auto parts, and the Fed changing course on interest rates.”
The Detroit Three all reported sales dips in the first half and Cox’s Smoke said, “The season of volatility continues” in the stock market, auto market and the economy will continue, crippling consumers’ ability to afford cars as the credit market tightens and prices rise. As a result, automakers will flood the fleet companies with vehicles to support weakening retail sales.
“It’ll be the highest sale of fleet vehicles in the history of the automotive market,” said Smoke.
Politics and labor
The issues circling the auto industry include unresolved trade deals with China and the European Union as well as the threat of tariffs with Mexico resurfacing, said Smoke. He warns that if there’s a 25% tariff on Japan, for example, the import brands, which export compact cars to the United States, would be hardest hit.
“Much of the compact car segment will be unviable in terms of the economics for a consumer,” said Smoke. “Luxury, which is already having a weak and mid-performance year could especially be challenging in Europe and Japan. The crossover sector, which is where all the growth has been, will be substantially challenged on the retail side.”
Then, there are labor uncertainties. The UAW contract talks with the Detroit Three will start later this month. They are expected to be contentious after General Motors announced late last year it would indefinitely idle four of its plants in the United States and eliminate a total of 14,000 salaried and hourly jobs.
Smoke warned that GM in particular faces “consequences” of those contract negotiations which, “could have ripple effects not just for GM, but all parts of the supply chain.” The UAW contract expires at midnight Sept. 14.
Finally, Smoke said the uncertainty in the Middle East including the possibility of an all-out war with Iran, could endanger the economy and the auto industry in the back half of the year.
“All, pretty significant negatives that we’re facing,” said Smoke.
More used car sales
Then, there’s the fact that Ford has a lot of new product coming, which it must execute flawlessly, said Michelle Krebs, executive analyst for AutoTrader.
“So we’ll be watching those especially the launch of the Explorer and the Escape,” said Krebs.
But, on the good side, as retail sales of new vehicles sputter, consumers will turn to the used-car market and find good deals there, said Smoke.
“The strongest part of the market from a retail sales perspective driving the finance growth and driving the dealer business and producing strong vehicle values and making leasing attractive … is the strong used vehicle market,” said Smoke.
NADA’s Manzi said cars coming off lease will peak over the summer, totaling more than 4 million units this year. Those inventories will remain high over the next few years. Therefore as prices on new cars continue to climb, more consumers will shift to used.
Look for continued low finance deals, too.
“The Fed has signaled that we will not see any interest rate increases in 2019 and some believe that we may even see an interest rate cut of 25 basis points before the end of the summer. This will help slow the monthly payment creep that we saw in 2018,” said Manzi.
But contrary to last year, the positive effects of tax cuts will be less pronounced this year and job gains seem to be slowing in the “late stages of what is now the longest period of expansion on record,” said Manzi.
And, like the other industry experts, look for the uncertainty surrounding the implementation of tariffs on imported autos and auto parts, “which if implemented later this year will cause new vehicle prices to rise and sales to fall,” Manzi warned.