After abysmal March and April prints and growing speculation on Wall Street that auto sales are looking less like a "plateau" (Ford's term) and more like a debt-fueled bubble on the verge of a "2007-like" collapse (Bloomberg's term), analysts were looking toward May auto sales for signs of hope. Unfortunately, the "hope" fizzled for the 5th straight month as overall auto sales declined again, with domestic light vehicles sales printing at an annualized 12.59 million, the lowest sales number going back more than three years, with GM missing badly even as its dealer inventory rose to a post-bankruptcy record "channel stuffing" high, while those carmakers who did beat expectations, did so by using record incentives and discounted sales to rental and other fleet customers (such as Ford).
Here's the math: domestic car sales continued their decline on a year-over-year basis, although there was a silver lining within SUVs and pickup trucks, which rose for many manufacturers. May car sales came in at an annualized 4.50 million units (according to Stone McCarthy calculations), compared to April's pace of 4.80 million, and last May's 4.98 million. Light truck sales declined in May to 8.09 million compared to the 8.32 million selling pace reached in April, and below the 8.13 million units sold a year ago. In total, May domestic light vehicle sales fell to 12.59 million units, below expectations and far below April's 13.12 million selling pace. In fact, as shown in the chart below (blue column) this was the worst monthly print going back more than three years.
This was the worst six month drop in domestic light vehicle sales going back to the depths of the financial crisis.
A breakdown in units by OEM, shows another similarity to 2007: while domestic car sales plunged by almost 8%, light truck sales continued to grow as more Americans once again buy SUVs instead of sedans, a growing problem for Hyundai, which saw a 19% drop in its car sales (even if its light truck sales also tumbled).
While every US automaker posted an annual decline, one name stood out, Ford, which reported a 2.3% increase in total light vehicles sold. There was a reason for that: without discounted deliveries to bulk customers, Ford’s sales would have dropped in May, as actual consumers cut back on purchases.
Describing the May number, Jessica Caldwell, executive director of Edmunds, said “it’s a bit of smoke and mirrors" as carmakers “really pushed the deals over the holiday weekend to prop up their May numbers."
According to Bloomberg data, the industrywide selling rate including imports, slipped in May to about 16.8 million light vehicles, compared with 17.2 million a year ago. This would mark the third straight month of a sales pace short of 17 million, which last happened in 2014, and the fifth months in a row of declines. The ongoing slump reinforces estimates for the U.S. auto market’s first annual contraction since 2009 while on a year-over year basis, the Y/Y decline was the worst since 2011.
There's more bad news.
All of the above numbers would have been far worse if not for generous incentives, and automakers spending what amounted to a record sum on incentives to support slumping sales and clear growing dealer inventory. According to J.D Power, incentive spending reached a record of $3,583 per vehicle in May.
And yet, despite all that discounts and incentives, inventories keep growing, and in May the average number of days a vehicle spends on dealers’ lots has topped 70 for the first time since 2009, during the depths of the industry’s crisis. “Continued elevated incentives reflect the challenges of balancing record levels of inventory and are likely to remain elevated unless production is adjusted to meet consumer demand,” said Deirdre Borrego, senior vice president of automotive data and analytics at J.D. Power.
As Bloomberg notes, "while a pace of more than 16 million is historically strong and plenty profitable, slower sales have saddled automakers with too much inventory and precipitated bigger discounts. “We will see more production cuts, particularly in passenger cars,” Autotrader's Michelle Krebs said. And nowhere will the cuts be more acute than at GM, which as reported earlier ended May with a record 963K units in dealer inventory, or 101 days of supply.
"After seven years of growth, sales were bound to reach a plateau" Krebs added, and despite OEMs' refusal to accept reality, what happens next is clear: it's all downhill from here.