U.S. auto sales dipped significantly in March despite discounts and low gas prices due to what some economists call a long overdue cool down of the market.
Sales for the month fell 1.6 percent to just over 1.55 million vehicles, with a negative percent change of 10.6 percent in sales of passenger vehicles from March 2016 according to Autodata Corp.
“We had sales that were sub-16 million for more than five years, those were very low sales,” said Steven Szakaly, chief economist at the National Automobile Dealers Association. “Then we entered this growth period…we had a lot of pent up demand for those low sales years and that’s kind of done now, it has worked its way through the cycle.”
Sales for the month fell 1.6 percent to just over 1.55 million vehicles, with a negative percent change of 10.6 percent in sales of passenger vehicles from March 2016 according to Autodata Corp.
Automakers expected sales to improve or remain stable in last month’s report but the annualized sales pace dropped from 17.58 million to 16.62 million. And economists don’t expect sales to make a vast improvement in the coming months.
“I think we are looking at a year where we’re going be right around the 17.1 million level, so I think we are going to see the usual seasonality, but we’ll stick to that 17.1 million for the year,” Szakaly said.
There’s been a steady stream of auto sales the last couple of years, but with the drastic slow this month in sales, automakers are scratching their heads. Economists’ reasoning behind low sales – expectations don’t line up with the demand.
“When we look at actual data for consumer spending, cars or retail sales, and so forth, they don’t measure up to these pronouncements of great optimism,” said Peter Morici, economist at the University of Maryland.
For months now, passenger car sales have been declining and automakers are really feeling it this month. In February, passenger car sales fell 12.1 percent compared to the same period the previous year. And this month, Nissan, Honda, and Ford Motor Co., saw sales drop for sedan models that were once some of the most popular.
Nissan’s Altima saw a decline of 18.2 percent this month compared to March 2016, while the Ford Fusion saw a plunge of 36.8 percent and Honda’s Accord slid 12.1 percent.
Nissan however remains optimistic. In a press release, Jeff Conrad, senior vice president and general manager of the Honda division said automakers are looking for signs of market stability as consumers continue to head towards trucks and SUVs while remaining optimistic about the future of passenger cars.
“But cars are still a compelling choice for many, especially when you have the right formula. Civic is a great example,” Conrad said in the statement.
Truck and SUV sales continued to rise, following the trend of the last few months with an increase in sales of 5.2 percent. And economists believe this pattern may continue in the coming months.
“They still have a really good fuel economy and so they just overall offer great value to consumers,” Szakaly said. “You can put more things in it, you can get kids in there, you get friends in. You can do multiple things with the same vehicle that you are more limited with a sedan, it’s that functionality that is driving it.”
For 28-year-old Priscilla Martinez of Los Angeles, Calif., leaving her sedan behind is just plain logical.
“My lease is ending this year, and I need more space,” Martinez said. “It doesn’t make sense for me to lease another car when I could be paying the same amount for an SUV. I won’t pay more and I get more space.”
And while functionality seems to be the key in why trucks and SUVs have taken over as kings in automobile sales, gas and mileage also play important roles.
“Consumers have done a lot of borrowing to buy big SUVs to get better gas mileage,” said Morici. “They now have them in their driveways and they don’t wear out so quickly.”
With low gas prices and no projection for price hikes, consumers are taking advantage of similar costs they would have for a sedan with the SUV.
“The amount of extra gasoline you need to run an SUV, with comfortable and serious space has fallen. The attractiveness of sedans has fallen and you can’t go around that,” Morici said.
Some experts also believe loan terms have played a major part in what consumers are buying. By extending lease and loan terms, consumers have more time pay for truck and SUV purchases.
“The monthly expenditure for transportation hasn’t changed very much at all. And people are getting a great deal more utility out of that expenditure,” said Kristin Dziczek, director of industry, labor and economic at the Center for Automotive Research.
And car buyers who are looking to take advantage of long payment periods and discounts may be in luck in the coming months. Automakers have been pushing incentives for trucks and SUVs the last few months, but with a need to move inventory, that may change.
Some experts believe sedans will sell – at a discount. A surplus in sedans may mean steeper discounts for consumers, the question is whether the auto industry will shift their production tactics.
“Sales could rise but the question is at what prices,” said Morici. “The auto industry always sells what it makes, they have to clear out the inventory. What I see is a lot of opportunities to buy minivans and sedans at discounted prices.”
Minivans were also weak in last month’s sales, with a year-to-date percent change of 19.9 percent for the minivan and 27.2 percent for the small van.
Automakers are still banking on truck and SUVs, sticking to what buyers want and need at the moment. According to Szakaly, automakers must invest in what consumers are buying and not shift their focus to creating new products that may entice buyers.
“Fighting really upstream against consumer choice is usually not a winning solution. It’s better to develop products that consumers want, in segments that they want.”
