May 2007 'Big 3' Vehicle Sales Preview

Includes: DDAIF, F, GM
by: Jerry Marks

Ford's sales analysis manager, George Pipas, told reporters Tuesday during a conference call that Ford expects a single-digit-percentage decline in overall sales for May compared with a year earlier. Sales to rental-car firms are expected to be 20% lower, as the company continues executing a strategy of scaling back on low-margin transactions.

Source: Wall Street Journal, John D. Stoll, May 30, 2007

U.S. vehicle sales are expected to come in at a seasonally adjusted annual rate of about 15.9 million to 16 million vehicles for May, down from last May's rate of 16.2 million units.

Source: Reuters, Jui Chakravorty, May 30, 2007

May 2007 Vehicle Sales
This afternoon automakers will report how many vehicles were sold at the dealerships that represent their brands (franchised auto retailers).

The table below shows you how many vehicles I think were sold and how many units the dealers ended with in inventory in May 2007 versus what the industry reported last May (2006). In analyst terms, we call this a forecast or guesstimate. . .

may vehicle sales 1

*As a special note, the number of dealerships is based on what the NADA reports in their data book at the beginning of each year (January 1st).

First of all, I just want to point out that the 1.5 million units I am forecasting works out to about 15.4 million units on a seasonally adjusted annual rate [SAAR] basis. So if the early reports are correct about a 15.9 to 16.0 million SAAR, it suggests U.S. light vehicle sales were up (on a year over year basis) roughly 4% versus last May.

Importantly, even when you consider my sales forecast of 1.5 million units, after a pretty difficult April, it appears very likely that dealer inventories are going to continue showing year over year improvements. And dealer throughput appears to be getting better as well (number of new vehicles sold per dealership).

I don't know if this reflects real cost structure improvements, or that dealers are passing more of the bonus dollars they get from the manufacturers onto the customers (read gross profit margin erosion). But productivity metrics at the store level (nationwide) suggest things are getting better.

Something else I think you should take note of. The inventory improvements have been almost entirely coming from the domestic branded automakers (General Motors (NYSE:GM), Ford (NYSE:F), and Chrysler Group (DCX)).

According to the Automotive News Data Center, as of May 1, 2007, the "Big 3" had a little more than 2 million vehicles sitting on dealer lots (inventory).

The May 1st data represents nearly 58 out of every 100 units of all vehicle inventories (technically 57.8%), which is still, an imbalance when you consider the Big 3 only sold 54 out of every 100 vehicles in the United States (54.2% market share) in April 2007. But a dramatic improvement from the 64 out of every 100 (64.3%) vehicles sitting on Big 3 branded dealer lots (versus the total vehicles on all dealer lots) as of May 1, 2006.

May 2006 Vehicle Sales Environment
What I thought might also be helpful is to give you some perspective of what was going on last May (2006). So below is a little "snip it" of what I said in my newsletter last year about May vehicle sales.

According to Ward's compilation of the results, total U.S. light vehicle sales fell 3.7% to 1.44 million, which on a seasonally adjusted annual rate [SAAR] basis, we calculate equates to 16.7 million units. On a daily selling rate [DSR] basis (there was one fewer "selling day" this month versus last April), U.S. light sales edged up 0.1%.

General Motor's head of sales analysis Paul Ballew appropriately described the month as "a bit weaker than they expected." The top selling cars were as follows: (1) Camry, (2) Corolla/Matrix, (3) Civic, (4) Accord, and (5) Impala. The top selling trucks were as follows: (1) Ford F-Series, (2) Silverado, (3) Ram Pickup, (4) Caravan, and (5) Sierra.

Most management teams seemed to indicate there was not aggressive pricing in the market in April (contrary to the Wall Street Journal article we discussed yesterday morning in the Auto Retail Informer). Mr. Ballew indicated industry-wide average transaction prices [ATP] were up 3%, with industry incentives per vehicle estimated by them to be down $1,500 year-over-year and down $300 from last month. GM management also indicated it helped that Ford and Chrysler seemed to ease off of their very aggressive incentive programs (and also added that they seemed to be getting some favorable pricing in the daily rent market).

Ford management said it seemed like DaimlerChrysler seemed to ease off on some of the incentives, while GM seemed to increase their incentives a bit. Ford management also said if there was any reason for the weakness in their results, it was not due to pricing, but more likely to some payback from the strong March their dealers had. Dealer inventories also look to be moving in the right direction, although we continue to encourage caution as we head into the tougher comps of this summer. Ford's head of sales analysis, Mr. George Pipas toward the end of their conference call best described the sales comparisons starting in June as getting "crazy."

Source: the Auto Retail Informer, June 2, 2006

And of course Mr. Pipas was referring to the dramatic sales that occurred in June and July of 2005 because of the employee discount offers (which made for tough comps in June and July of 2006). So this summer, assuming a "novel incentive program" is not introduced, we should see more "normalized" sales comparisons.

May in relation to the second quarter
Below I have provided last year's new vehicle sales by month and what percent of total second quarter sales that month represented. For example, in April of 2006, the 1.44 million units sold in the month represented almost 33 out of every 100 vehicles sold in the second quarter of 2006.

On the other hand, based on my estimate for a total of 4.3 million vehicles sold in the second quarter of 2007 (down 2.2% from the second quarter of 2006), it means the 1.33 million units sold in April 2007 only represents about 31 out of every 100 vehicles I think are going to be sold in the entire second quarter of 2007.

Once again, the sales figures for May and June of 2007 are only my guesstimates. . .

may vehicle sales 2

As you can see, my "guesstimate" is "back ended." I think it all comes down to how aggressive the automakers get with their incentive programs.

May sales conference call details
GM, Ford and Chrysler all host conference calls with investors and media to discuss the results. None of the foreign branded automakers conduct such a call.

Ford 1:00pm (eastern). The webcast can be found at

General Motors. 2:00pm (eastern). Dial in: 1-800-731-1420 (or 1-416-641-6652 for International access). Replay: 1-800-633-8284 (or 1-402-977-9140 for international access) and enter reservation number 21307999 to access the replay.

Chrysler Group. 3:30pm (eastern). Dial in: 800-857-0714 (or +1-210-795-9123 for International access). Call Leader: Markus Mainka Passcode: Sales. Replay: 800-839-1185 or +1-203-369-3698.