Fleets Continue to Prop Up U.S. Auto Sales Numbers

(Bloomberg) -- Automakers are propping up their U.S. sales by boosting deliveries to rental-car companies and other fleet customers, as demand from consumers keeps slipping.

• Researcher LMC Automotive sees retail sales dipping in February for the third time in four months. In a Bloomberg News survey, analysts estimate the seasonally adjusted annualized rate of total deliveries slowed to about 16.7 million cars and light trucks, from 17.1 million in February 2018.

Key Insights

• Carmakers are starting 2019 by continuing a trend: LMC projects fleet deliveries to be up about 3.4 percent in February after a jump in January. These sales, which are typically viewed as less healthy because they tend to involve hefty discounts, rose 8.6 percent in 2018.
• Deliveries to retail consumers, meanwhile, fell for the third straight year in 2018. This weakness -- fueled by the cratering sedan market -- helps explain why General Motors Co. is closing plants and Fiat Chrysler Automobiles NV plans to cut a shift at an Illinois factory in May.
• Carmakers have been holding back on incentive spending and leaning on fleet channels instead, but that could change in the spring as the truck wars heat up and consumers come out to shop, according to Derek Glynn, an analyst at Consumer Edge Research.
• While it’s trimming output at its Jeep Cherokee plant, Fiat Chrysler is making a $4.5 billion bet that demand for pickups and sport utility vehicles stays strong. It’s planning to invest that sum in cranking up output of new Jeep models and continuing to assemble a dated version of its Ram light-duty truck.

ANALYST COMMENTARY

• Consumer Edge (Glynn): Expects retail sales to fall by low single digits y/y, partially offset by growth in fleet sales
  • February likely benefited to a minor degree from inclement weather in late January, which may have caused some consumers to shift purchases to this month
  • Also focused on trends in incentives and inventory levels; says incentive growth moderated throughout 2018, but automakers will have to lean on higher promotional spending in 2019 to generate demand as competition picks up in the light-truck segment
  • Sees potential for higher tariffs as a significant negative for carmakers, dealers and suppliers
  • Under a 25 percent tariff-rate scenario, anticipates total U.S. light-vehicle sales would fall below 16 million units
• RBC Capital Markets (Joseph Spak): February is a lower-volume month, so a difference of a few thousand units can shift the SAAR significantly
  • Believes the industry exhibited good discipline with incentives down 6.8 percent y/y
  • Expects average transaction prices to continue to increase as higher-priced SUVs and trucks gain market share
• Goldman Sachs (David Tamberrino): Retail sales are tracking down low single digits y/y, slightly better than the mid-single-digit decline observed in January
  • Average vehicle incentives were down $260 y/y through mid-month, continuing the trend of y/y declines, with January incentives falling 6 percent y/y to $3,506/vehicle

Get More

• President Trump is still mulling higher tariffs on autos and car parts as leverage in trade negotiations with the European Union. Such a move, when combined with steel and aluminum levies, China duties and other Trump administration trade policies, could cost the U.S. auto industry 1.3 million light-vehicle sales, according to the Center for Automotive Research.

To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net;Esha Dey in New York at edey@bloomberg.net

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, ;Courtney Dentch at cdentch1@bloomberg.net, Melinda Grenier

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