GM is hoping the new Cadillac ATS can help it rebuild some momentum.
Sales of new cars jumped 18% in July despite growing economic certainty. But the numbers also reflected shifts in the market dynamics that had prevailed over the past 12 months as Honda and Toyota reported big sales increases, while General Motors and Ford Motor reported their sales dropped last month and other carmakers began to show signs of distress.
It was a month of conflicting trends, some reports suggesting makers were, on the whole, able to command their highest transaction prices while continuing a year-long cutback in incentives. But there are indications that pattern may not be able to continue much longer.
Fast-growing South Korean carmakers also saw their sales pace slow as both Hyundai and Kia reported only modest increases for July and the boom in luxury car sales seems to be winding down as BMW, Mercedes-Benz chalked up on modest gains, while Porsche sales slipped 1%.
Industry analysts will be watching closely, in the weeks to come, to see if the market can maintain the momentum it had shown during the first half of the year as sales were unchanged from June with a seasonally adjusted annual sales rate, or SAAR, topping out at 14 million units
GM reported its sales dropped 6% as it cut back on sales to rental fleets, while Ford posted a 4% decline, largely due to reduced sales to fleet customers. GM also tried to downplay the bad news by noting that it has been running short of the new Chevrolet Malibu — with just a 28-day supply on dealer lots, or barely half what the industry considers a normal inventory level. But smaller Japanese brands also suffered as Mitsubishi tumbled 47%, Mazda’s sales dropped 7% and Suzuki’s sales also declined. All three companies could face serious trouble if the overall market slips.
(GM reports a 40% plunge in profits for Q2. Click Here for the details.)
GM isn’t the only maker pointing to lower fleet sales to help find a silver lining in its July numbers. Ford also elected to reduce those low-profit sales but the impact on the market share of the two makers has been significant, as a result. For the first six months of 2012 GM’s share slid to 18.1% compared to 19.9% during the same period a year earlier. Ford’s share, meanwhile, dropped from 16.9% to just 15.7%.
Among the first of the Japanese to report for July, Nissan posted a 16.3% increase in sales for July, while Volkswagen posted a 27% sales increase. But both makers also bucked the industry trend and have been sharply ramp up incentives. In fact, Nissan spent more than $3,200 per vehicle in July, putting it number one among all makers in the U.S. market.
Significantly, second on the giveback list, at just over $3,100 per vehicle, was Chrysler which continued to build its sales volume by posting a 13%% sales increase in July. The only one of the Detroit makers to show gains for the month, Chrysler was also unique among the domestic Big Three to report an earnings increase for the second quarter.
“July was another solid month for Chrysler Group as we again demonstrated our disciplined and methodical approach to growing sales and profits,” said Reid Bigland, President and CEO – Dodge Brand and Head of U.S. Sales, who noted it was the maker’s 28th-consecutive month of year-over-year sales gains.
(Chrysler counters Detroit trend with big upturn in earnings. Click Herefor more.)
But the big winners in July were Toyota and Honda, a year after inventories at both companies were badly depleted because of the shortages created by the earthquake and tsunami. For July, Honda’ sales climbed 46% and Toyota posted a 37% increase in sales as dealers finally had the inventory they needed to woo back consumer loyalists who had been waiting on the market sidelines.
“Consumers are responding to Camry’s strong value and affordability proposition, taking advantage of long-term, low interest rate financing and low lease rates,” said Bill Fay, Toyota Division group vice president and general manager. “Leasing has gone mainstream. For instance the Camry, the best-selling car in America, is benefitting from strong residuals — which allow for leases of less than $200 a month.”
A significant factor in the market has been a steady decline in incentives, according to one analysis of sales trends. At the same time, Average Transaction Prices, ATP, or the price the typical customer pays – has been rising. Toyota and Honda both set records last month, reported TrueCar.com, a car pricing, trends and forecasting service.
(Yes, you’re likely paying more for that new car, truck or crossover. Click Here for more details.)
TrueCar estimated the average transaction price for light vehicles in the United States was $30,369 in July 2012, up $487 (1.6%) from July 2011 and down $139 (0.5%) from June 2012.
Honda, however, saw its ATP jump 2%, year-over-year, and 0.2% from June 2012, to a record $27,123. Toyota’s was up 3.0% for the year and 0.6% from June, to a record $28,074.
“Even though automakers may give the impression that they are ramping up incentives spending, the very low cost of funds and historically high resale values are in fact enabling them to create a ton of noise with fewer actual dollars spent,” said Jesse Toprak, Vice President of Market Intelligence for TrueCar.com. “Manufacturers are increasingly moving away from cash incentives and pushing finance and lease programs,” he added.
In addition, prices for used cars, the key support for less expensive leases and financing deals, have leveled off and could be headed down, according to Art Spinella of CNW Marketing.
What’s ahead is anyone’s guess, industry analysts warn. Recent downturns in the economy could pose a serious problem. Despite rising transaction prices, “it’s the concern about whether someone will have a job” that is keeping many potential buyers out of the market, cautioned analyst Jim Hall, of 2953 Analytics.
For the moment, manufacturers are able to command strong pricing practices because they rationalized capacity during the recent recession – and have actually been struggling to meet demand for many models in recent months. Hyundai, for example, has warned it would likely lose share this year because of production constraints. But if the market weakens, all bets are off and the incentive figures could start to rise again, according to analysts.
Meanwhile, Japan’s strong resurgence could soften as pent-up demand among those who waited out last year’s crisis is finally met and the maker’s no longer can compare 2012 numbers to disastrous 2011 sales.
Detroit’s two biggest makers, in turn, are hoping that new products will reverse their recent, poor showings. GM, in particular, did show some positive signs: its new 2013 Chevrolet Malibu has been tracking well against the Toyota Camry, the king of the midsize segment, and might have done even better in July had dealers held more inventory. The Cadillac division, meanwhile, is showing signs of life after several weak years thanks to the arrival of two new products, the big XTS sedan and a BMW 3-Series fighter dubbed the ATS.
Paul A. Eisenstein contributed to this report.