U.S. Auto Sales Surged in February

Mar 02, 2016

 

Presidents Day promotions and pent-up demand fuel strong results

Auto sales bounced back in February after a lackluster start to the year amid favorable economic conditions, deeper discounts and pent-up demand among shoppers who put off buying a car in January because of a late-month blizzard on the East Coast.

Most major auto makers reported light-vehicle sales increased during the month, with Ford Motor Co. and Fiat Chrysler Automobiles NV delivering double-digit percentage gains. General Motors Co., the No. 1 seller in the U.S., continued to lose market share due to lower sales of its biggest and most profitable Chevrolet trucks and SUVs, a significant pullback in sales to fleet customers, and struggles selling as many luxury cars and GMCs as it did a year ago.

February’s selling pace, estimated to have hit a seasonally adjusted annual rate of more than 17.5 million vehicles, marked a 16-year high for the month, but failed to live up to the 18-million-plus rate of demand that was hit three months in a row late last year. Researcher IHS Automotive said low interest rates, employment gains and inexpensive gasoline likely would lead U.S. sales this year to 17.8 million, higher than last year’s 17.5 million.

Some analysts pointed to deepening manufacturers’ discounts and heavy use of subsidized leases as reason to believe demand—while strong—has reached a plateau.

“Incentives are still fairly elevated and remain a concern” RBC Capital Markets auto analyst Joseph Spak said in a research note. The sales pace is healthy, he said, but “it seems somewhat incentive driven.”

Citing TrueCar Inc. research, the analyst notes average transaction pricing for the industry crept up 1.9%, while incentives climbed 11%. While attractive offers help keep cars and trucks more affordable, they erode profit margins and auto makers easily become dependent on them as a way to sell vehicles even when underlying demand cools.

Such behavior is “what you see at the peak of the market,” said Mark Wakefield, a partner with consultants AlixPartners LLP.

Industry executives say Americans are still in the mood to buy, even if car companies must reach deeper into their pockets to close deals. “The energy in showrooms was just starting to build in the last week of February,” Nissan Motor Co.’s U.S. sales chief, Judy Wheeler, said.

“February was just an incredible month,” said Beau Boeckmann, president of Galpin Motors Inc. which operates dealerships in California. “We just don’t see any signs of it slowing down. In fact, we see it picking up speed.”

Despite widespread optimism among industry players, concerns about a sales plateau have dampened investor sentiment, with shares of GM and Ford down 5.6% and 10.3%, respectively, since the beginning of the year. Ford shares closed up 4.6% on Tuesday at $13.09 apiece, while GM registered a 1.9% gain to $30.01.

A total of 1.34 million light vehicles were sold in February, according to data provider Autodata Corp., representing an increase of 6.9% over the same period a year ago. There were an equal amount of selling days last month compared with a year ago. With gasoline falling below $2 per gallon in many parts of the country, sport-utility vehicles, crossover wagons and pickups continued to dominate sales. Autodata reports 57.4% of February sales were light trucks.

Ford’s F-series pickup, Explorer SUV and Edge crossover all posted hefty gains. Fiat’s Chrysler banked its 71st consecutive monthly sales increase on continued gains from its Jeep SUV division, which increased 23% to further cement itself as the fastest-growing mainstream brand in the car industry.

Ford sold 216,045 vehicles in February, a 20% increase compared with the same period in 2015. Fiat Chrysler’s 182,879 deliveries represented a 12% increase, nearly equal to the 12.8% increase notched by Honda Motor Co., which sold 118,985 new cars and light trucks.

Fiat Chrysler’s tally fell just short of Toyota Motor Corp. The Japanese auto giant sold 187,954 vehicles last month, up 4.1% from the prior year.

GM, meanwhile, hit a pothole with a 1.5% decline to 227,825 vehicles sold. The company said it sold 39% fewer vehicles to rental firms, but sales of Chevy’s Silverado, Tahoe and Suburban—three of the company’s most profitable vehicles—slumped. Several of the brand’s less-lucrative passenger cars, including the plug-in hybrid Volt, the Malibu and the compact Sonic, gained considerable ground.

Volkswagen AG continues to suffer in the U.S. in the wake of an emissions-testing scandal that led to the halting of diesel car sales and damaged its reputation.

The German auto maker’s namesake brand reported a 13% decline in sales during the month even as its Audi luxury brand and Porsche sports car brand posted gains.

Corrections & Amplifications:
February had 24 selling days this year and in 2015, and Toyota’s U.S. sales rose 4.1% over a year earlier to 187,954 vehicles. An earlier version of this article incorrectly stated last month had an extra day of sales, and the article and chart put Toyota’s sales increase at 5.2% to 189,852. (March 1, 2016).

 

Source: The Wall Street Journal