Auto Bloodbath: Lowest Domestic Auto Sales In Three Years Despite Record Inventories And Incentives

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.


VK Thu, 06/01/2017 - 18:34 Permalink

Poof and its gone. The financial economy is carrying on in its deranged manner while the real, underlying economy is deteriorating. Vehicle sales declining, good jobs going away, poor wage growth, high real inflation, retail sector shutting stores at a record pace and cost of healthcare rising 9% per annum for the last thirty years all set to bankrupt USSA. Not to mention mindboggling sums of debt and unfunded promises.

Consuelo Thu, 06/01/2017 - 18:46 Permalink

  "After seven years of growth, sales were bound to reach a plateau" And now shall come seven years of auto sales Hell.  "A measure of wheat for a penny, and three measures of barley for a penny; and see thou hurt not the oil and the wine."  Nor the rotting auto inventory...

Dilluminati Thu, 06/01/2017 - 19:08 Permalink

The car buying experience in PA anyway is pretty bad.  Trying to get an OTR (on the road)) tax tags, fees is really not a fun experience in the age of Amazon.  I had car dealers simply lie, make any distorted claim in advertising, I decided not to buy.  I'll await when they actually get hungry which if it takes awhile will be fine.  But serious note: I had dealers tell me that the internet price was wrong, when I contacted about the internet price of the car on the lot, verfified it was on the lot, again they lied and quoted a newer year model.  "It was as if" they were advertising liquidation specials of previous year specials and steering sales to current year models and I wasn't in a mood to be sold, I simply wanted to buy a car.  I'll go back when the models they tried to steer to are older and try again, they lie again, I hit on google review again.It was pathetic and really the car buying experience in our area anyway unprofessional and insulting. 

Ajax_USB_Port_… Thu, 06/01/2017 - 19:14 Permalink

The local Dodge, Chrysler, Fiat dealer's lot was full last year. Now this year, they've changed the spacing between the cars/trucks. The cars/trucks used to be spaced about 4' apart, now they are spaced about 2.5' apart. I'd estimate at least 700 vehicles total and some appear to actually be parked on the highway right-of-way. It's total grid lock. It would be entertaing to watch them try to get a vehicle out of the middle of the mess.

bshirley1968 yellowsub Thu, 06/01/2017 - 19:48 Permalink

Its either make them and hope someone starts buying or go broke.  They can't stop.  Got to make them debt payments, got to make them pension payments, got to keep the wheels of debt based industry turning.......Can't lower price either.....because that would mean they would have to sell even more units to make their debt payment.Debt is in the driver's seat.....pun intended.

In reply to by yellowsub

Tom Green Swedish bshirley1968 Thu, 06/01/2017 - 21:50 Permalink

GM and also Ford (got lucky and refinanced).were texhnically bankrupt in 2008 along with all the banks. Took 4 trillion at zero percent interest to kick the can down the road. Wonder how they get out of the mess they created. We have no growth debt to the sky and a 600 billion dollar trade deficit a year.. We have nothing besides some decent military equipment. Good luck with that.

In reply to by bshirley1968

godiva chocolate Thu, 06/01/2017 - 19:25 Permalink

Sick to death of researching the prices, doing my homework, know what a good and fair price should be only to sit down to do numbers and the dealer tacks on a $1000-$2000 charge for bullshit I never wanted.  Paint protection, a few years of small dent removal, upholstery cleaning, car washes, mud flaps etc.  Any good deal suddenly goes to shit after somebody adds in $1500 for bullshit.  Quit playing those kind of games if you want to sell cars.

InnVestuhrr Thu, 06/01/2017 - 21:20 Permalink

Truck & SUV sales are going strong, the problem is the passenger cars. I jst ordered a Ford truck from the factory, 16-20 week wait time, that does NOT sound like a demand problem to me.

Tom Green Swedish Thu, 06/01/2017 - 21:43 Permalink

Its crash time folks load up on 120 spy puts for 2018 or 2019. Auto sales declining. Growth Declining. Mortgages Declining. Trade gap increasing. Debt is equal to the the market cap of the entire stock market. However we did add 250,000 minimum wage jobs and used up some oil. Id say we have reason to go up at least another 15 percent this year.

roddy6667 Thu, 06/01/2017 - 21:52 Permalink

Don't worry. It's not bad everywhere. GM makes and sells more cars here in China than in America. They also make more profit, even though they have to split the profits with a partner company. They are building a new Escalade factory outside Shanghai now.The average auto worker here makes $5.75 an hour US. That sounds low, but the workers do not spend their money in America. That pay buys a decent middle class lifestyle here. That worker has good working conditions, job security, health insurance, a pension, owns a home and all the consumer goods a Westerner would have, takes vacations, sends his kids to college without loans, and most amazing of all, saves 36% of his pay for the future.What would an American worker have to make to match this lifestyle? What would a car cost?

roddy6667 Buster Cherry Fri, 06/02/2017 - 22:10 Permalink

The air is the same color the air was in America when it had industry and jobs. Places like Pittsburg, Bethlehem, Birmingham, and Detroit had bad air, gray snow, and dust on everything. Every country that has gone through the msnufacturing phase of development has had this. In the Fifties and Sixties Japan was massively polluted. Most people are too young to remember. Do you remember the color of snow in Pittsburg? Do you remember the color and taste of the air in LA? Do you remember when the Great Lakes were so polluted that nobody could eat the fish?I didn't think so.

In reply to by Buster Cherry

Cockoo Thu, 06/01/2017 - 22:53 Permalink

In the Oakland Bay area they are already, offering semi deals a Toyota Tacoma truck for $21,729 MSRP $23,815.  Toyota is offering 2017 SR? for $21,729, w/incentive while the same type of truck 2016 is offered for $23.494 and $22,994 both sticks the last two. Some dealers are trying to curb the bloodbath that is coming and sell what they can ASAP imagine some dealers will take a major hit by the end of 2017. Supply is out stripping demand for vehicles in 2017.
/* Style Definitions */
{mso-style-name:"Table Normal";
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-fareast-font-family:"Times New Roman";

Road Hazard Thu, 06/01/2017 - 23:15 Permalink

Next time all you car manufacturer CEO's get together with your friends from the Fed. Reserve, other "captains" of industry and peers at your next Bilderberg child raping party, thank each other for destroying the dollar, killing off the middle class, stagnating wages and taxing us all to death.Your cars aren't moving because the people that buy them don't have money. (If somebody needs an economics expert, you can hire me for weekends and birthday parties.)On top of that, because of the weak dollar, your cars are too fucking expensive.In the mean time, enjoy watching inventory pile up. Every day on my way home from work, I pass a few dealerships and keep seeing cars spilling over into overflow lots. Quite funny. One of these days, a big dealership or two is going to get the bright idea to torch his fleet, throw down some Syrian passports and cash out.I don't need a new car but I would LOVE to go into a dealership right now and get a bargain. Being that it's a buyers market, BIG TIME, I'm 100% confident I could get them to knock off THOUSANDS UPON THOUSANDS from MSRP just to move a vehicle. Last year, we got a dealership to knock about $6,000 off MSRP on a new minivan. I'd love to go again but need to pay this one off first. :)For years, dealers have fucked people over with their shitty tactics and inflated prices. Time to pay the piper, boys!

JailBanksters Fri, 06/02/2017 - 01:40 Permalink

I see the US car industry as the worlds biggest new car cyclerThey exist purely to make cars so they can recycle them back into newer cars.They refuse to change, the government won't let them die, so why should they change.