Today is the sales cutoff for the month of April and the auto sales report will be released tomorrow. This month’s report will indicate for many whether the slump in sales seen in March’s report will continue the rest of the year. Last month’s seasonally-adjusted annualized rate came to 16.62 million units according to Autodata Corp., a number that surprised many economists who expected results well within 17.3 million units.
Steady Drop in U.S. Auto Sales
Economists expect auto sales to continue declining at a steady rate. Analysts were surprised last month when sales saw a sharp decline. Sales for the month of March fell 1.6 percent with a dismal percent change of 10.6 percent in the sale of passenger vehicles according to Autodata Corp. “This market has come down from the records we’ve had,” said Steven Szakaly, chief economist at the National Automobile Dealers Association. “There’ve been two record years – 17.5 and 17.5, so we have been expecting it to come down.” Inventories are high and the demand is no longer present as past sales indicate the auto industry has reached its peak. In the past six years, the auto industry saw a boom as economic growth and consumer confidence pulled in sales. April auto sales are likely to come in at a seasonally adjusted of 17.1 million according to Szakaly.
Rise in Incentives?
With a number of vehicles sitting on dealership lots, automakers are looking for a number of ways to expedite the number of sales. The auto industry has offered large incentives in past months in the sale of trucks and SUVs, averaging incentives between $2000 and $4000 per vehicle according to estimates by the Center for Automotive Research. “The attractiveness of sedans has fallen and you can’t go around that,” said Peter Morici, economist at the University of Maryland. “Prices will be discounted, especially on sedans and on minivans.” This however may be a test of outweighing one benefit for another. While automakers may offer more incentives, this may also mean less money in their pockets.
Will Americans Continue their Struggle to Pay Car Loans?
New research says many Americans are no longer able to pay their car loans. According to the Mizuho Research Center, losses on subprime loans jumped 9.1% in January, that’s up 7.9 percent from the same period last year. More than ever, consumers are also taking advantage of longer loan terms, many who have forgone traditional terms of 36-month and 48-month terms to 60-month and 72-month terms. “Consumers have done a lot of borrowing and have done a lot of borrowing to buy big SUVs,” said Morici. According to the New York Fed, six million individuals have been at least 90 days late on their car loan payments.
Light Truck Sales Will Prevail
Truck and SUVs have been the auto industry’s saving grace during the last few months. Sales soared in February and March, with truck sales accounting for 62.3 percent of sales in February compared to 57.6 percent a year ago. Automakers such as General Motor Co., Ford Motor Co., and Toyota saw increases in sales due to the popularity of trucks and SUVs. The Ford F-Series saw a 10.1 percent change during March in the positives compared to the same period last year and the Toyota RAV4 experienced a similar change at 10.3 percent. Consumers are flocking to trucks and SUVs, not only for functionality but also for their affordability. “I think light trucks are going to continue to be very strong,” said Szakaly. “People are getting a great deal more utility from trucks and SUVs, and I don’t see a change in that.”
Sedan Sales Will Continue to Take Hit
Sedan sales have weakened drastically in the past few months and economists predict this trend will continue. Trucks and SUV sales have soared in the first three months this year, a trend that has affected the sale of sedans and has the auto industry scrambling to find a way to sell a surplus of sedan inventory. Passenger cars accounted for only 37.7 percent of sales in February, down from 42.4 percent a year ago. March sales did not fare much better, passenger car sales were down almost 11 percent according to Autodata Corp. “There’s very little demand for sedans and we also have a large amount of sedans coming into the new vehicle market,” Szakaly said.