One of the hallmarks of the ongoing European economic depression has been the complete implosion in the continent's automotive sales (here and here) and as Reuters summarized last week, there is little hope of a rebound for a long, long time. Curiously, where Europe has seen complete devastation, the US has been surprisingly resilient, and even when factoring in for such traditional gimmicks as channel stuffing, performed most notoriously by GM, which in March had the second highest amount of cars parked on dealer lots in its post-bankruptcy history, car sales have been rather brisk which in turn has allowed the US to report manufacturing numbers which, until the recent PMI and ISM data, were better than expected. One does, wonder, however, how much of a factor for this has been the forward demand-pull impact of Hurricane Sandy in late 2012, when as a result of tens of thousands of cars being totaled in tri-state area flooding, consumers scrambled to car lots to buy new autos. Well, we may have found the reason for the recent disappointing performance in both the Chicago PMI and the Manufacturing ISM - the positive effect from Sandy is finally fading, as today's domestic car sales show, which posted a surprising decline in March, especially in non-Trucks which dipped to the lowest since October 2013, and the first miss in total light vehicle sales SAAR since October.
The chart below shows total domestic car and truck auto sales in the past year in the US.
And the steep decline in just car sales:
A long-term chart showing Car sales...
...And truck sales:
Furthermore, as Stone McCarty observes, the biggest hit to total auto sales was experienced by light cars, whose SAAR dipped to 5.354 million the lowest since October and well below expectations, with demand for greater fuel-consuming light trucks still going strong, and validating that the recent surge in end-demand has been primarily one of Sandy-driven replacement.
Once again, the mix of vehicle sales seems to be geared toward more light truck sales this month. The long-run trend indicates that demand for smaller, more fuel-efficient cars has increased relative to demand for light trucks because of rising gasoline prices. However, it appears that light truck sales have been boosted in the short-term since Superstorm Sandy. Perhaps the recovery process has sparked interest in vehicles with higher load capacity. Also, many truck enthusiasts will be satisfied simply in receiving the large fuel-economy benefits by replacing their older, less fuel-efficient vehicles
Finally, those curious where the funding for car purchases comes from should wonder no more: cheap credit all the way:
The January Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices reported that, "auto loans had strengthened, on balance, while demand for other types of loans was about unchanged... within consumer lending, a moderate fraction of domestic banks reported an easing of standards on auto loans, on net, while standards on other types of consumer loans were about unchanged... a moderate fraction of respondents continued to experience stronger demand for auto loans, on net, while demand for credit card loans was reportedly unchanged... responses from domestic banks indicated that they had again eased standards on auto loans over the past three months".
In short, the credit-fueled, Sandy replacement cycle ramp is ending, and has already manifested itself in far weaker than expected PMI and ISM numbers. The good news for Q1 GDP is that the bulk of the front-loaded sales have already taken place and the result will likely be a stronger than realistic PCE component to Q1 GDP, which as most sellside desks have revised, will be in the 3% range, with all threats of a sequester-induced collapse in demand appearing quite meaningless in retrospect.