March will test auto demand
DETROIT – March will be one of the most crucial months for the U.S. auto industry in years.
Sales were slower than expected In January and February, and the number of unsold cars on dealer lots grew. Some automakers had to resort to juicy discounts to lure reluctant buyers.
Most industry executives, dealers and analysts blame the historic cold temperatures and snowfall and expect warmer weather to restore consumers’ enthusiasm for car buying. Most still expect annual sales to exceed 16.1 million, which would be the highest level since 2006.
But a continuation of the trends could signal more fundamental reasons for sagging demand. For instance, consumer confidence fell slightly last month, according to the Conference Board. That hurts car sales, since buyers need to be confident before they invest in a car.
More broadly, another few months of lackluster numbers could mean that U.S. sales have peaked and may not return to the 16 million to 17 million range that was commonplace last decade, before the financial crisis.
“March will give us a sense of how real the recovery is going to be this year,” said Alec Gutierrez, a senior analyst for Kelley Blue Book.
U.S. consumers bought just under 1.2 million new cars and trucks in February, unchanged from a year ago. That follows a 3 percent drop in January – the first year-over-year decline since August 2010.
So far this year, new vehicle sales have been on pace to hit a little more than 15 million for the year. Last year, the industry sold 15.6 million cars and trucks.
Gutierrez believes sales will recover and hit 16.3 million this year. Pent-up demand from the snowy winter will help, he says, along with low interest rates, attractive lease deals and strong new competitors like the Subaru Forester and Jeep Cherokee.
“We think there is still plenty of time left this year for sales to rebound and kind of get us back on that pace,” he said.
But if the sales pace is less than 16 million to 16.1 million in March and even April – and cold weather is no longer a factor – the industry might have to downgrade its expectations for the year, he said.
General Motors, Ford, Toyota, Honda, Hyundai and Volkswagen all reported sales declines in February. GM and Ford said the month started slowly but sales began to recover in the second half. If that momentum continues into March, fears of a broader sales slowdown may prove to be unfounded.
“We expect, heading into the month of March, a very solid spring market,” said John Felice, Ford’s U.S. sales chief.
Some automakers bucked the trend. Subaru’s February sales jumped 24 percent thanks to strong sales of its new SUVs, the Forester and Crosstrek. Chrysler and Nissan also reported double-digit gains, but discounted some key models to get there.
Slow sales caused dealer inventories to rise in January and February, putting pressure on companies to clear their lots. Larry Dominique, executive vice president of auto buying site TrueCar.com, says there is now an 85-day supply of vehicles in the U.S. A 60-day supply is more typical.
Automakers are offering more discounts. Incentives are at a three-year high, averaging $2,633 per vehicle in February, up more than 5 percent from a year ago, according to TrueCar. That’s good for consumers but expensive for automakers.
Dominique said automakers may feel pressure to continue high incentives in March, but that’s dangerous, because consumers could get accustomed to the discounts.