Big Decline in U.S. Auto Sales May Signal End of Six-Year Boom (NY Times)

By Bill Clasic, September 1st, 2016

DETROIT — It was a good run while it lasted.

But a bigger-than-expected decline in the August auto sales numbers reported on Thursday indicated that the industry’s long and robust growth cycle may have reached its end.

For six years, since the end of the economic recession, automakers have enjoyed a steadily growing market in the United States, as monthly sales routinely surpassed those of the previous year.

On Thursday, though, manufacturers reported that overall sales in August fell about 4 percent compared to a year earlier. The decrease was larger than generally forecast by analysts, who said it probably signaled the end of the pent-up demand among consumers who put off replacing their aging vehicles during the depths of the recession.

The slowdown could force some companies to pump up incentives on poorly selling models and possibly curtail production at some assembly plants.

“It’s clear that the auto industry has finally peaked,” said Karl Brauer, an analyst with auto research firm Kelley Blue Book.

Industry analysts estimated that sales for the month totaled slightly more than 1.5 million vehicles, and the closely watched, seasonally adjusted annual sales rate dipped below 17 million.

The pace of sales is still healthy, particularly when compared with recession-level sales of 10.4 million in 2009.

But analysts are now casting doubt on whether this year’s sales will match last year’s record number of 17.4 million vehicles. And even an incremental decrease in the overall market will heighten pressure on some companies to add more discounts and pare back production of certain models.

“We don’t see the industry taking a huge dip, and this is still a high level of sales,” said Michelle Krebs, an analyst with the car-shopping site Autotrader.com. “The big question is how each automaker is going to react to slower demand.”

The industry’s comeback in the United States has yielded big profits for most automakers in recent years, and allowed them to increase investments in global markets as well as new technology like automated driving features.

But the growth could not continue indefinitely, according to analysts who have studied the industry’s cyclical sales patterns.

“There has never been a streak longer than six years dating back to 1920, so it would actually be unusual if the industry were to rise this year as well,” said Tom Libby, an analyst with the research firm IHS Markit.

The industry has outperformed the overall economy for several years, particularly in sales of pickup trucks purchased by construction and energy companies.

Consumers have also taken advantage of easier availability of credit, as well as a variety of leasing options that had dried up when the industry fell on tough times financially.

And while new-car prices continue to rise, the underlying demand has softened.

“We don’t have a lot of pent-up demand now like we did coming out of the economic crisis,” said Bryan Bezold, an economist for Ford Motor.

Ford was among several automakers that posted sharp reductions in sales during August compared with 2015.

General Motors, the nation’s largest automaker, said that it sold 256,000 vehicles during the month, which represented a drop of 5.2 percent.

G.M. has taken some criticism on Wall Street for scaling back on less profitable sales to rental-car companies and other corporate fleets. Instead, the company has focused on retail sales to consumers, which generally produce healthier profits-per-vehicle.

Despite the decline in August, a G.M. official expressed confidence that the industry may still match or exceed the sales record set last year.

“We think the industry is well-positioned for a sustainable high level of consumer demand,” said Mustafa Mohatarem, the company’s chief economist.

Ford said its sales fell 8.8 percent in August to about 213,000 vehicles. Its passenger cars fell more than 25 percent during the month, even as sales of its popular trucks and sport utility vehicles remained relatively steady.

“It was not a pretty month for Ford,” said Ms. Krebs of Autotrader. “Their car sales nose-dived and truck sales flattened out, and the question is, what will they do to turn this around?”

Other automakers also reported sharp declines in sales of traditional passenger cars, as buyers continued to gravitate toward S.U.V.s that provide more space and functionality.

The three big Japanese carmakers reported lower United States sales. Toyota was down 5 percent, Honda was down 3.8 percent and Nissan was off 6.5 percent.

Some automakers bucked the trend, particularly those that sell mostly S.U.V.s. Fiat Chrysler, for example, reported strong demand for its Jeep models. And Land Rover, which specializes in luxury S.U.V.s, had a rise of 15.4 percent.

But the popularity of S.U.V.s and trucks cannot make up for big declines in passenger cars. According to the firm Autodata, car sales fell over 12 percent in August, as truck and S.U.V. sales rose about 2 percent.

That imbalance may force some companies to consider scaling back production of cars to better align output with demand.

“An end to the growth curve was inevitable,” said Mr. Brauer of Kelley Blue Book. “Now the automakers’ focus will shift from simple growth to market share and managing inventories.”

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