Car Sales Crash, But It's Complicated

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Includes: CARZ, F, FCAU, GM
by: Wolf Richter

Despite what you might think, automakers did not "cut back" on fleet sales. But keep an eye on Uber (UBER) & Lyft (LYFT).

Automakers sold 1.144 million cars and light trucks in January, down 1.8% from a year ago. But the "seasonally adjusted annual rate" (SAAR), the standard measure for monthly new vehicle sales, came in at 17.6 million units, right up there with 2016 annual sales of 17.55 million units, which had been a record, though all US automakers, and some of the largest foreign brands booked declining vehicle sales in 2016.

These sales are cars and light trucks that dealers delivered to their retail and commercial customers and that automakers delivered to large fleet customers, measured in vehicles, not dollars. It's raw and unvarnished data, warts and all.

And there were some big warts. Compared to January last year, car sales collapsed for all three US automakers, and the largest Japanese automakers didn't do much better:

  • GM (NYSE:GM) -21.1%
  • Ford (NYSE:F) -17.5%
  • Fiat Chrysler (NYSE:FCAU) -35.8%
  • Toyota (NYSE:TM) -19.9%
  • Honda (NYSE:HMC) -10.7%
  • Nissan (OTCPK:NSANY) -9.0%

For all automakers combined, car sales sagged 12.2% from a year ago. Light trucks sales, which account for 63% of total sales, rose 5.7%, but weren't quite able to fill the hole in car sales.

The media was busy explaining that this car sales debacle came about because US automakers had somehow "cut back" on fleet sales to focus on profitability.

Alas, at GM, overall vehicle sales fell 4% in January, compared to a year ago. Retail sales fell even more: 5%. Car sales plunged 21%. But total fleet sales rose 1%!

GM explains that deliveries to rental companies edged down 1%. But government deliveries soared 12% and commercial sales inched up 1%. So fleet sales weren't the problem at GM. Retail car sales were!

At Ford, overall vehicle sales edged down 1%. Retail sales rose 6%. Fleet sales dropped 13%. Ford had its own explanation for that: Ford didn't cut back fleet sales to focus on profits, no way, not in this environment, when retail sales are getting propped up costly incentives. Instead:

The fleet decline reflects a strong year-ago comparison, with fleet customer orders front-loaded at the beginning of 2016….

In other words: It wasn't Ford walking away from selling to fleets. It was fleet customers cutting back their orders to Ford.

At Fiat Chrysler, overall vehicle sales fell 11% in January. Unlike GM and Ford, even its trucks sales fell (-5.6%). Last year, it discontinued building the Dodge Dart and the Chrysler 200 due to dismal car sales. Now car sales took an even bigger hit (-35.8%). The media reported this fiasco with a positive spin - that the company "has been aggressively cutting its fleet sales."

FCA, Ford, and GM have all announced plant closings and layoffs, due to plunging car sales and surging inventories. Trucks sales have been strong. But car sales have been terrible.

They're terrible despite huge incentives. Average incentives by manufacturers rose 21.6% from a year ago to $3,635 per vehicle according to estimates by TrueCar's ALG. Incentives were either cash incentives or financing incentives, with 10% of all new car loans being "interest free" - in lieu of some or all of the cash incentive.

Rising incentives to keep sales from declining even more steeply isn't a good sign. But that's the paradigm these days.

One thing we know from GM's and Ford's own statements, and from FCA's struggles: they're not purposefully "cutting back" on fleet sales.

If fleets need vehicles, they're going to buy them. If they don't need as many vehicles, they're not going to buy them. If FCA decides to cut back on its fleet business, its potential customers are going to buy their units from some other automaker. There can only be a shift from one to the other, a market-share thing.

So overall car sales are not down because automakers "cut back" on fleet sales. They're in a deep funk for several reasons:

1. American consumers have gravitated toward light trucks;

2. Retail sales of cars are getting squeezed by a flood of off-lease vehicles that customers turn in at the end of the lease, and that are sold via auctions to dealers on whose lots these cars compete with new cars, but at a much lower price point;

3. And rental car companies, are trimming back their orders for reasons of their own, under pressure from a variety of directions, including rideshare companies, whose drivers own their own cars and buy them via retail sales not fleet sales. For automakers, the arrival of the rideshare industry means a welcome shift from fleet sales to retail sales. But it's still not enough to stop the decline in car sales.

Wall Street hocus-pocus has done an awesome job. Read… Dow Companies Report Worst Revenues since 2010, Dow Rises to 20,000 (LOL?).