Standard&Poor’s thinks the May slump in US automobile sales is likely a temporary blip, but that full year 2011 sales are still likely to fall below the 2008 level.
Light-vehicle sales in the US declined 3.9% from sales in May 2010, as the seasonally adjusted annualized rate (SAAR) of sales came in at 11.8 million units (according to Ward’s AutoInfoBank)–a significant 10.5% below the SAAR in April 2011.
In Standard & Poor’s Ratings Services’ opinion, lower production and inventories of vehicles following the March disaster in Japan, in combination with the recent experience of higher gasoline prices, which were up nearly 40% since last May, were the main reasons for the lower sales rate. As we expected, the SAAR for May reflected higher demand for smaller, more fuel-efficient cars.
May’s SAAR was well below our current expectation of 12.9 million units for the full year.
We believe this could be a temporary blip, however, before demand somewhat recovers toward the end of the year as potentially lower gas prices and rebounding production in Japan support sales at the high end of our estimate of the scrappage or replacement rate (10 million to 13 million units). However, this would still place our expected 2011 sales below levels recorded in 2008.
Leaving aside the likely recent inventory reductions for dealers of Japan-affected automakers, dealers had restocked their inventories since 2009, and so we expect production increases (the main catalyst for automaker and auto supplier sector results) to be much less dramatic than last year’s increase of 38% in North America.
For example (according to Ward’s AutoInfoBank), North American production in the first quarter of 2011 increased 16.5% (we don’t believe the earthquake significantly affected first-quarter production) from the same period in 2010. In our opinion, partly because of the events in Japan, there is the potential for continued reduction in production and inventory levels over the next several months, as virtually all automakers will feel the effects to some degree. However, this could result in higher-than-expected production in late 2011 to catch up for lower levels midyear.