Auto Sales Disappoint Despite Surging Incentives, "Worrisome Trends Are Taking Hold"

Tyler Durden's picture

Just as we predicted, it seems - despite the "everything is awesome" jobs data - that auto sales exuberance has hit the wall of credit saturation. Despite a surge in incentives in Q1, GM US auto sales rose just 0.6% (drastically lower than 6.0% rise expectations) and Ford rose 7.8% (missing expectations of a 9.4% surge). As J.D.Power notes "there are worrisome trends below the surface" of auto sales and with inventories at levels only seen once in the last 24 years (and tumbling used car prices), the automakers have a major problem if this is anything but 'transitory'.

It wasn't just GM and Ford though:

  • *FIAT CHRYSLER MARCH U.S. AUTO SALES RISE 8.1%, EST. UP 14%
  • *FIAT CHRYSLER HALTED IN MILAN, LIMIT DOWN AFTER FALLING 4.9%
  • *HONDA MARCH U.S. AUTO SALES UP 9.4%, EST. UP 16%
  • *VOLKSWAGEN OF AMERICA MARCH AUTO SALES DOWN 10.4%
  • *TOYOTA MARCH U.S. AUTO SALES DOWN 2.7%, EST. UP 5.6%

U.S. light-vehicle deliveries, aided by low gasoline prices, rising discounts and favorable financing terms, have climbed 3.4 percent this year through February after rising 5.7 percent to a record 17.47 million in 2015. But on a selling-day-adjusted basis, new-vehicle retail sales in March are expected to fall 2 percent from a year ago, according to a joint sales forecast by J.D. Power and LMC Automotive. It would be the first time there has been a year-over-year decline in sales on an adjusted basis since August 2010, Power and LMC say.

What is most troubling however is, as JD Power notes, the worrisome trends below the surface...

Following an exceptional performance in 2015 with strong sales and record average price per vehicle sold, the U.S. automobile market must adopt a more disciplined approach to maintain long term health for the industry, according to a briefing given by J.D. Power here today at the 2016 J.D. Power Automotive Summit.

 

J.D. Power warns that incentive spending on new vehicles has risen rapidly in the past year and is trending toward recession-era levels for the industry as a whole and has already exceeded recession-era levels on cars.

 

The analysis, presented as part of the J.D. Power Automotive Summit, which kicks off the National Automobile Dealers Association Convention & Expo, finds that while overall industry retail sales are expected to grow by 300,000 to 14.5 million units in 2016, the growth is being delivered through actions that pose meaningful risks to the long-term health of the industry. Those actions include elevated incentive spending, increased use of extended loan terms, rising loan-to-value ratios and record levels of leasing.

 

"Overall, auto sales figures continue to post strong results, but when you peel back just one layer beneath the surface, some worrisome trends are taking hold," said Thomas King, vice president of Power Information Network at J.D. Power. "Chief among the trends is the fact that first quarter sales incentives averaged 9.6% of MSRP, a 70 basis-point increase from last year and are trending toward levels observed at the height of the recession.

 

"The increased spending, which is due primarily to manufacturers trying to offset a shift in demand from cars to trucks and SUVs, has the potential to reduce future resale value. Significant declines in the value of used cars would disrupt consumers' ability to buy new vehicles (due to lower trade-in values), while vehicle manufacturers and lenders would have to deal with exposure on their lease portfolios (if off-lease vehicles fail to achieve their expected resale value)."

And this sales weakness is occurring amid a mal-investment-driven excess inventory-to-sales at levels only seen once before in 24 years...

 

And worse still, used car prices starting to fade rapidly (biggest Feb drop since 2008)...

 

Falling used car prices means pressure on new car prices as well, which would be a shock to America's booming auto market.

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Hohum's picture

It's just one month.  For the spring, you need a new car to go along with the new house.

Dg4884's picture

with nothing down and no credit check or W2 for that matter.

NoDebt's picture

First off, notice how used car prices are still on a higher "plateau" than they used to be prior to 2009?  They don't deserve to be higher.  Cash for Clunkers shot used car prices way up (because the government was destroying the vehicles being traded in under that program), but they never really came down again.  

I think that ends when the tidal wave of off-lease vehicles (mine included) hits on top of record high new car inventories.  The lease deals they've been offering the last 5 years is borderline insane.  You can lease a car for peanuts (which is what I do) because they assume an unrealistically high residual value on the car in addition to the 0% interest rate.  But those cars are all coming back now competing with the new cars.  Market is saturated and something has to give.  It'll be the price of new cars that comes down because the price on the used ones coming back in HAS TO cover the assumed residual or it's not worth them selling it.

 

 

Government needs you to pay taxes's picture

Gonna need a bigger EBT card to keep those sales numbers going up!

Son of Loki's picture

NPR guest just said auto sales phenominal!

"Best year since 2008."

 

Of course, I don't believe 99% of the distorted stuff spoken on NPR.

HardlyZero's picture

...also, don't forget, in San Francisco and other super high-flying rental districts...a car *can* be a moblie studio sleeper, just find a free parking area in burbs or structure (or storage).

Save_America1st's picture

I heard a car sale ad on the radio this morning that was absolutely ridiculous.  I think it was a fucking KIA ad...can't recall...I think I was too astonished by everything else I had heard in the ad to recall if it was KIA or something else.  It said if you bought or leased a vehicle this weekend they would throw in an entire living room set...tables, chaires, couch, love seat, etc.  Plus throwing in 2 big 50 inch TV's and a video game console of some kind. 

Buy a fucking car and get a whole new living room.  Geez...how pathetic.  And when the car gets repo'd like most of them will I wonder if they will repo the living room at the same time. 

The Saint's picture
The Saint (not verified) Son of Loki Apr 1, 2016 1:48 PM

My morning news radio station reported this morning that Toyota new car sales where the highest in company history.  I need to find out what those announcers are smokin.

JRobby's picture

NPR is a joke. The daily suck up to Hitlary is nauseating and they really take their calm, soft little "npr" like shots at trump daily.

Some of their news writing seriously, is coming right out of their asses.

JRobby's picture

Turn out the lights
The party's over
They say that
All good things must end
Call it tonight
The party's over
And tomorrow starts
The same old thing again

(Willie Nelson)

remain calm's picture

Wait TSLA sold 180,000 Model 3. The over indebted or subsidized TSLA will save the world. Fuck Off Musk you oppurtunist genius. The US taxpayer made you a Billionare with the help of a bought out Washingtom

KnuckleDragger-X's picture

No, they've booked pre-orders, and remember, Tesla is the four wheeled version of the iphone for hipsters......

Ghost of PartysOver's picture

The US taxpayer made you a Billionaire with the help of a bought out Washingtom

By no means is he alone.  The problem is that way too many Muricans are just to naive to understand what both Party Establishments are doing to them.

Firepower's picture

All usa car co's are run stupidly. I predicted GM would go bankrupt years ago when I worked for them. Never a more stoopid, venal bunch of nepotists on earth - except for BIGov.

Strategy is but a Political Fairy Tale http://wp.me/p2kmGE-2CJ

They will insist on $30,000 Cocobolo desks for their corner office capitalists - but they can't get a door lock right. Fuck 'em.

remain calm's picture

Lets burn coal to make electricity because Electric cars are clean. F me.

KnuckleDragger-X's picture

And don't forget wind and solar, which exist to soak up subsidies while doing very little......

Seek_Truth's picture

Bingo.

I am an EE and have been preaching the same since the Prius came out.

Energy inefficiency at it's worst- that's what electric cars are.

Not to mention the pollution from the manufacture and disposal of the batteries.

Kprime's picture

so my modified windmill powered kia is a non starter?

The Saint's picture
The Saint (not verified) Kprime Apr 1, 2016 1:52 PM

Windmills kill birds.  Greenpeace will be coming for your kia.

HardlyZero's picture

the only upside of electric cars IMHO, even with their toxic batteries, is to setup/demand the eventual development of Thorium or other molten salt type reactors.

If we have billions of souls on the planet then will need some clean, cheap, 'greener' source of nuclear electric, and must be very very safe.

(I've read the few dozen US ships were supporting the Fukushima cleanup years ago remain "hot" and toxic.)

{ when we change over, maybe Japan will lead the way in development first ?  Rockwell tried molten salts in the 50's and 60's in Los Angeles }

jus_lite_reading's picture

New house (section 8), new Obamaphone (free), new job at McD's flipping burgers for $15.80 per hour (how long will it take before they want $30?), new Nike Jordans in red (of course, paid $450 for them from a crack dealer but basically free cause Obama gonna pay my shit), new Obamainternet for $9.95 (70% discount), new Healthcare plan (free), food (free), childcare (free) etc etc.........

Damn, the Free Shit Army is really not that bad. Maybe I'll join and increase the load on this bitch so the whole motherfucker just collapses...

Kprime's picture

hint; they already want 30

j0nx's picture

Dafuq can afford this shit when halfway decent townhouses in questionable hoods start at 425k and raises are few and far between the increases in health insurance costs?? Phbt...

Bloppy's picture

Why is ZH so quiet about non-stop Tesla hype in today's mainstream media? CNBC is providing updates every time Musk tweets.

InflammatoryResponse's picture

don't you mean when musk toots?

 

 

Joe Cool's picture

I'm waiting for the 30-year new car mortgage...

Kprime's picture

that's a little tight for my budget, now the 70 year mortgage might be doable.

HardlyZero's picture

To go with the 100-year bond(s).

jus_lite_reading's picture

I am going to create the first perpetual car loan... A lifetime to pay it off. Oh wait, they already have that. It's called leasing.

minitrue's picture
minitrue (not verified) Apr 1, 2016 12:21 PM

GM up .6%
Ford up 7.8%
Chrysler up 8.1%
Honda up 9.4%

After record sales in previous years, that seems pretty good.

Dg4884's picture

Yeah, .gov being the largest purchaser.  Tax $$$ hard at work.

Firepower's picture

record?

sales?

Compare sales from 1969,

some.

progress.

Sales to gookers ain't progress

Dg4884's picture

Yeah, F'ing billions in sub-prime loans has nothing to do with anyting...

brada1013567's picture

A new car in every garage, paid for by the Fed.

yogibear's picture

As long as they keep taking US dollars the Ponzi continues.

yogibear's picture

The Fed can print trillions more of Yellen dollars to bail out the automobile manufacturers.

Even those in Korea and Japan.

Seasmoke's picture

Just teeing up Cash4Clunkers 2.0. 

JiminGA's picture

Every maker is guilty of channel stuffing where they force shipments to dealers, count them as sales, and then offer incentives to move the overstock.  And even worse, 40% of those end user sales(the real ones) are sub-prime.  Look at any dealer's lot and you'll see there's no room for more.  The auto industry is committing suicide.....AGAIN.

RadioFlyer's picture
RadioFlyer (not verified) JiminGA Apr 1, 2016 12:57 PM

yup, they have them parked on the road the lot is so full at a dealer near me.

 

silverer's picture

It's also the reason GM and Chrysler should have been allowed to go bankrupt, but saved with taxpayer money. No wonder taxpayers can't buy new cars. They pay too much in taxes. See how screwed up it all is? So actually, it's ASSISTED suicide. Just more 2016 entertainment.

Hubbs's picture

Glad I am waiting to buy my new vehicle, now that my 2000 Merc Mountaneer is getting a little tired. Told my wife if I waited until July, probably could save a few $.

Drying up of subprime auto loans will cause car dealers to have to park their overflow inventories on the street, as the car lots are already full. Might be able to get a new vehicle near dealer cost.

 

 

Atomizer's picture

Once you start copying every car manufacturer, you lose creativity. Bolt on a badge that copies BMW and call it KIA.

KIA never developed the technology. They stole it. 

Why it's important for Trump 2016 to become President. 

Bunga Bunga's picture

Tesla will save the US. US will save Tesla.

VWAndy's picture

Maybe they can start selling cars to people in jail? Then it wont even matter if the cars run. Avoiding any warrenty issues.

Kprime's picture

imagine how easy the repos will be

Paul John Smith's picture

Sir - with thinking like this, you could be CEO of GMC!

Hohum's picture

The ad: Got a job making 25 cents per hour?

silverer's picture

Gee. I only have a quarter million miles on my vehicle. Check back with me in another 150,000. For a used vehicle.

Manipuflation's picture

Just a few minutes ago I had the oppurtunity to look at a BMW smart car.(#5)  Is their an inside joke that I don't know about?  That is not a car.  I do not know what is supposed to be.  This POS had 20K miles on it and was already sitting on the used car lot.  They wanted eight grand for it.  How about eight dollars?  In fact, I wouldn't take it for free because of the title transfer and plate fees.

Conversely, you have Dodge, Ford, Chevy, Toyota and even Hyundai building high-end performance cars that they want a $100K for.  Have you ever looked under the hood of those new "Hotrods".  I have.  It is nothing but a mess of wires and fuse boxes.  All of that shit is in there so you can do bluetooth type of shit and surf the web and probably watch cable TV commercials all while you are driving.  You can even talk on the phone so to speak while you are are watching TV and attempting to drive.  

FUCK THAT SHIT!  You notice that sort of shit when you are riding motorcycle and make sure that you are well away from them.  Those are the sort of folks who can kill you even if you are riding Harley.  I have taught me wife to avoid being around them when on a bike and now she sees it and she is amazed that she didn't notice this before.  You HAVE TO NOTICE every nuance of any given driver.  I told her that when she sees shit like that to just pull off the road and let it be.

The bottom line is that new cars are overpriced and full of shit that you don't need.  Can I have a simple engine and transmission please?  No, they can't do that.   We need to have the new 2934578ew57239578 XR Super Supreme 2016 engine so the incessant TV/radio/internet commercials say.  People barely know how to put gas in their car anymore much less check the oil these days.  Fuck that shit.  Buy a good OBD2 code reader for fuck sakes.  It is all emmisions related.  You don't need a new car and the debt debt that goes with it. 

For fucks sakes in Canadian terms, I have four of the damned things.  They will start and they will do what you need them to do.  Two are nice and two are pieces of shit but still reliable.  Those two are winter cars.  I have to admit that I have fallen in love with that 96 Lincoln Towncar and so has the woman and the childrens.  Even with 275,000 miles it is still cool with all leather interior mind you and the heat works.  And you get some respect on the road.  The car is huge and your little shitbox doesn't stand a chance if you fuck with me.  Even big trucks respect me.  The cops think you are an old man so they don't mess with you.

I like that about some cars.  I won't own a red car.  Cops get penile erections for anything red.  They don't make the Lincoln Towncar like they did in the early to mid 90's.  They are out there though and people are already collecting them.  Mrs. M was pissed at me when I bought mine but now she likes it.  That is a typical woman no matter what country she is from.

NEVER buy a new car.  Ever.                     

pliny the longer's picture

this reminds me of the old jerky boys routine, does anybody remember the used car salesman that drives his car silly  silly!!!  sort of reminds me of the lease deals last few years.  ordinarily i'd agree leasing appeals to facebook checking suburban milfs but there were some no money down lease rates that were pretty good last few years.  the pliny family loaded up and we drive it silly, silly!!!  can't wait to turn that F'ing thing in