U.S. Auto Sales Slump May Extend to a Third Month

(Bloomberg) -- U.S. auto sales likely fell for a third straight month in March, as carmakers held the line on discounts and average new-car prices continued to climb. Most companies will report results on Tuesday.

• Retail sales, which exclude deliveries to rental-car companies and other fleet customers, probably were the lowest for any first quarter since 2013, researcher LMC Automotive says. The seasonally adjusted annualized rate of total sales in March may have slowed to about 16.8 million cars and light trucks, according to the average estimate in a Bloomberg News survey, from 17.3 million a year earlier.

Key Insights

• Automakers have been cutting back incentive spending, focusing more on preserving profit than moving metal. TrueCar Inc.’s ALG unit said car companies continued to reduce rebates in March, with the average discount shrinking $191 from a year ago.
• Prices keep rising as sedan sales slump and Detroit culls cars from their lineups, making SUVs and trucks a bigger share of the sales mix. That, combined with higher interest rates and underwhelming tax refunds, is weighing on affordability, shrinking the pool of people who can afford new vehicles, according to Cox Automotive.
• Carmakers are betting sales will pick up in the spring, as they typically do. But the threats of tariffs, cheaper used vehicles, tightening credit and economic slowdown could crimp demand. If deliveries don’t recover, the industry will be forced to hike incentives or cut production.

Analyst Commentary

• Goldman Sachs (David Tamberrino): Pickup truck mix is expected to be flat y/y although incentive spend is tracking down slightly as carmakers focus on refreshed products in the segment
  • Crossover mix is expected to be up again, continuing a shift away from passenger cars, but only by a few hundred basis points; notes this comes despite overall incentive spend for the SUV segment tracking down by ~$340/vehicle through mid-month
  • Passenger car incentives tracking down $410 y/y per vehicle, and says the segment is again expected to cede some share, particularly in small cars
• RBC (Joseph Spak): Expects average transaction prices to continue to increase as higher-priced SUVs and trucks increase market share
  • Maintains 2019 U.S. demand estimate at 16.7 million
  • Sees industry inventory at 68 days, below February’s 77 days, but in-line with March last year

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• President Donald Trump is reviewing the results of a Commerce Department probe into whether imports of cars and parts represent a threat to national security. Trump has until May 18 to decide how to respond, though White House economic adviser Larry Kudlow said Thursday the president may take longer, without elaborating.

--With assistance from Melinda Grenier.

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, ;Brad Olesen at bolesen3@bloomberg.net, Chester Dawson

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