As the auto industry continues its yearlong implosion in the U.S., dealerships are becoming super saturated with inventory. And with May set to be the fifth month in a row of declining auto sales, there's not much room left in the automotive channel to stuff.
Inventory is starting to become a serious issue across all U.S. automakers. On average, new vehicles sold in May spent 74 days on dealer lots, the highest level for the month of May since 2009 when the industry was plagued with the looming effect of the Great Recession. 29% of vehicles sold so far in May have sat on lots for 90 days or longer, up from about 25% last year.
Meanwhile, the sales forecast doesn't look as though it's going to help empty these lots anytime soon. Sales of new vehicles in May are expected to fall from a year ago, according to a new JD Power forecast. Retail sales are projected to reach 1,226,800 units, which is a 3.1% fall compared to last year. Even worse, the seasonally adjusted annualized rate (SAAR) for retail sales is expected to be just 13.5 million units, which is down about 200,000 units from last year. Year to date sales are expected to be down 5.2%.
According to AfterMarketNews, total sales in May are projected to reach 1,558,800 units, a 2.1% decrease and the seasonally adjusted annualized rate for total sales is expected to be 17 million units, down 200,000 from a year ago.
Thomas King, senior vice president of the Data and Analytics Division at J.D. Power said: “May is one of the highest-volume months of the year and its performance typically indicates how the year will play out. The expected sales decline in May, coupled with weak sales year-to-date has left the industry with rising inventories of unsold vehicles. Manufacturers are responding with larger discounts to take advantage of the Memorial Day weekend, which is one of the busiest car-buying periods of the year.”
Incentive spending per unit has risen so far in May to $3,722, up $25 from last year. This breaks the trend of lower year over year discounts that we have been tracking for the past 10 months.
King continued: “Despite the increase in discounts, the industry continues to exhibit reasonable incentive discipline. Spending as a percentage of MSRP remains below the 10% threshold at 9.1%.”
Meanwhile, the glut isn't likely going to be helped along by rising prices. New vehicle prices are on pace to reach $33,457 in May - their highest ever for the month and up 4% from last year. The record prices reflect higher prices for both cars (up 3% to $27,259) and trucks/SUVs (up 4% to $36,388), JD Power's report notes.
Remember, the nonsense-excuse-du jour for April's disappointing numbers was being placed
on the weather on seasonality on rising car prices, which easily pushed away an overextended, broke and debt-laden U.S. consumer.
King continued: “May reflects a mixed performance for the industry. For manufacturers, despite lower volumes, higher prices are delivering an increase in net revenue. For dealers, strength in the used market is offsetting weakness in new. Looking forward, elevated inventory levels remain an issue that will only be corrected through production cuts or higher incentives. As the industry starts its transition to sales of 2020 model-year vehicles, pressure to increase discounts on 2019 model-year vehicles will rise considerably.”
The report also noted:
• The average new-vehicle retail transaction price to date in May is on pace to reach $33,457. The previous high for the month of May — $32,112 —was set last year.
• Average incentive spending per unit to date in May is $3,722, up from $3,697 during the same period last year.
• Consumers are on pace to spend $41 billion on new vehicles in May, up $381 million from last year’s level.
• Truck/SUVs account for 70.8% of new-vehicle retail sales through May 19, the highest level ever for the month of May.
• Days to turn, the average number of days a new vehicle sits on a dealer lot before being sold to a retail customer, is 74 days through May 12, up 5 days from last year.
• Fleet sales are expected to total 332,000 units in May, up 1.9% from May 2018. Fleet volume is expected to account for 21% of total light-vehicle sales, up 0.8 percentage points from last year.
Jeff Schuster, President, Americas Operations and Global Vehicle Forecasts, LMC Automotive, offered a grim take on the year's outlook: “While sales remain at historically high levels, pressures on the auto industry continue to mount. Chief among these is vehicle affordability concerns, which outweighs the strong economy and record-high consumer sentiment that otherwise should portend continued growth in U.S. auto sales. Despite these positives, some consumers have decided to either forego a new-vehicle purchase by remaining in their existing vehicle or else have shifted to the used-vehicle market.”
Recall, this follows our report that auto sales had crashed 6.1% in April, marking the worst slide in 8 years for the industry. Aside for an incentive-boost driven rebound in March, every month of 2019 has seen a decline in the number of annualized auto sales. Furthermore, as David Rosenberg noted, the -4.3% Y/Y trend is the weakest it has been for the past 8 years.
In February, auto sales plunged to 18 month lows as SUV demand hit a brick wall. SUVs were, until this February, one of the sole remaining bright spots in the rapidly slowing U.S. auto market. Despite the fact that they were crippling traditional sedan sales, Americans' transition to SUVs was seen as a silver lining, prompting many automakers to make infrastructure changes to account for the change in demand. That silver lining looks to have all but completely disappeared at this point.
In January, auto companies set the tone for the year, starting 2019 just as miserably as 2018 ended, with major double digit plunges in sales from manufacturers like Nissan and Daimler.