Kelley Blue Book expects U.S. auto sales to fall 3.6% in June to 1.46M units. "With manufacturers continuing to announce production cuts at their plants following weaker consumer demand, it all but solidifies 2017 as a down year," notes KBB analyst Tim Fleming.
The LMC Automotive/J.D. Power forecast is for a 2.3% drop during the month to 1.48M units, although the overall diagnosis is equally cautious. "While the retail selling rate has declined in four of the first six months, the broader concern remains the negative health indicators behind the sales results," notes J.D.'s Deirdre Borrego.
During a conference call yesterday with analysts, GM CFO Chuck Stevens said the company expects U.S. light vehicle sales to be in the low 17M unit range for the year, a downward revision from the autmaker's original forecast for a 17.55M unit mark. Stevens highlighted the "very very conservative" pricing in the industry and "rational" stance on incentives.
The common theme from insiders and analysts is that automakers are now focused on profitability over volume and market share. Recent actions from the Detroit Three support that assertion.
Also in the mix for the industry is the rapid pace of partnerships between auto players and tech giants. Yesterday, the Avis-Waymo and Hertz-Apple deals were small in nature, but giant in implications for investors. The GM-Lyft partnership is already in second gear, while Tesla, BMW, Volkswagen and Toyota all have tech/mobility initiatives revving up.
Profit guidance from Ford (F -1.4%) for Q1 is sending off some alarm bells in the automobile sector. The company sees Q1 EPS of $0.30 to $0.35 vs. $0.47 consensus and $0.68 a year ago. The positive spin might be that the company is being proactive in adjusting to the changing landscape in auto.
The slide deck from Ford's presentation today includes a few interesting nuggets.
The company expects profit pressure in North America from commodities, emerging opportunities investments, lower volume and F/X. Ford Credit is seen facing lower residual values and tighter margins. Pricing is a concern in Asia.
The presentation also delves into the impact of higher interest rates, NAFTA, tax reform and infrastructure spending in some themes with broad implications for the industry.
Also, remember the term TaaS (transportation as a service). Ford is betting billions on the concept.
Reports of GM talking to PSA Group about a potential sale of its European business could have a ripple effect with supplies. While consolidation could strengthen the overall European automobile industry, suppliers might be pressured on pricing amid a rationalization push. Goldman Sachs warns on Valeo (OTCPK:VLEEF, OTCPK:VLEEY) and Durr (OTCPK:DURYY) in particular, while other auto parts makers could be in the mix if M&A activity heats up more broadly (source :Bloomberg).
Japanese automakers (OTCPK:NSANY, TM, HMC, OTCPK:MZDAY, OTCPK:SZKMY, OTCPK:FUJHY, OTCPK:MMTOF) are reconsidering strategy in the U.S. after taking in the strong preference by American buyers for SUVs and trucks. The shift in sales mix has contributed to the rising incentive spending needed to clear inventory.
Top execs at Toyota say the company will have to be "very careful" with the North American market going forward.
"It’s a peak and we don’t see a potential for further growth," said Nissan co-CEO Hiruto Saikawa.
Toyota reported earlier today a sharp drop in FQ2 operating profit. Last weekend, news broke that the company may make a serious pure EV commitment.
The shifting ground in the automobile industry has long-term implications for suppliers as well.
U.S. auto sales are expected to show a decline of 2% to 5% for August amid a dialing back of discounting activity, according to the range of forecasts from Kelley Blue Book, Edmunds, J.D. Power, and LMC Automotive. General Motors is poised to report a loss of market share as its plan to cut out fleet sales impacts volume.
Bloomberg estimates the seasonally adjusted selling rate for the month will be 17.2M, down from 17.9M last month.
The sales dip isn't necessarily a bottom line drag for the sector due to reduced discounting and the increasing mix of higher-profit SUVs and trucks. But higher profit hasn't lifted automaker stocks this year, with the group having trouble gaining traction and trading with low forward PE multiples (GM 5.5, Ford 6.8, Honda 10.5, Toyota 10.9).