June's decline reflects drop in deliveries to rental-car
companies; higher prices also cited
By Mike Colias and Adrienne Roberts
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 5, 2017).
Auto sales continued to slide in June, as car buyers reacted to
higher vehicle prices and Detroit backed away from dumping unwanted
inventory into rental-car lots.
General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles
NV reported steep monthly sales declines compared with the same
period in 2016. While retail demand is losing steam, each of
Detroit's players also reported significant reductions in
deliveries to daily-rental companies, long the Motor City's biggest
customers.
Sales to Enterprise Holdings Inc.'s Enterprise Rent-A-Car or
Hertz Global Holdings Inc. traditionally were a way for auto makers
to keep factories rolling even as dealership traffic slowed. But an
excess of that business has dented profits, auto makers say, and
soiled brand reputation.
The move away from rental sales reinforces a newfound discipline
for domestic players that have been riding a seven-year growth
streak since GM and Chrysler sought bankruptcy protection in 2009.
The Detroit 3 reported tens of billions in profits during that
span, bolstered by tailwinds from falling gas prices and surging
demand for profit-rich trucks and SUVs.
Overall industry demand softened over the first half of 2017,
however, falling about 2% through six months and 3% in June,
according to Autodata. The development ushers in an expected
plateau for auto sales, an important driver for the broader U.S.
economy.
The fleet-sales pullback is having a disproportionate impact on
wider volumes. Sales to retail customers at dealerships are down
less than 1% over the first six months of the year, but sales to
nonretail customers such as government fleets, commercial buyers
and rental-car companies are off 7.8%, according to J.D. Power.
A rental-car reduction "is not something normally seen" at the
start of a cyclical sales downturn, R.W. Baird analyst David Leiker
said in a research note. The reversal of that trend could ease
concerns that profit margins will erode as auto makers chase less
lucrative business or resort to price wars.
Even as auto makers ramp up incentive spending to improve dealer
traffic, transaction prices are rising as cars are loaded with more
safety gear and connectivity features. A consumer shift away from
sedans and toward pricier sport-utility vehicles also aided the
trend.
Edmunds.com reported that the average monthly payment on a car
or truck has soared above $500, forcing buyers to stretch more than
ever to obtain a new set of wheels. The firm estimates the average
auto-loan length reached a record 69.3 months in June, with the
average amount of financing reaching $30,945, up $631 from May.
GM's sales fell 5% to 243,155 vehicles in June, while Ford's
sales totaled 227,979 vehicles, down 5.1%. Fiat Chrysler's sales
slumped 7% to 187,348 vehicles.
Japan's top sellers fared better during the period.
Honda Motor Co. reported a 1% increase compared with the
previous June, with 139,793 vehicles sold, aided by gains at its
Acura luxury division, while Nissan Motor Co. sold 143,328
vehicles, or 2% more than the prior year, as it ramps up its
reliance on trucks. Toyota Motor Corp. notched a 2.1% gain, with
202,376 vehicles sold.
Certain Asian auto makers, including Korea's Hyundai Motor, have
fueled sales with rental-car sales. At Nissan, rental sales surged
37% in 2016 and were up 9% this year through May, making Nissan the
only major auto maker to boost rental deliveries, according to data
from Bobit Business Media, a publisher of trade magazines.
Detroit's sales declines, meanwhile, are fueled by lower fleet
sales.
GM sold 15% fewer cars to rental fleets in the first five months
of the year, compared with a year earlier. The auto maker said
Monday that when June figures were added, the decline came to 21%.
Rentals accounted for 8% of total sales in the first half, compared
with 9% in the first five months and less than half the level from
a few years ago.
Ford said rentals accounted for 13.2% of overall sales in June,
down from 15% for the first five months of the year and from 15.6%
in June 2016.
"We try to keep our overall daily rentals within a reasonable
number," Ford's U.S. sales chief, Mark LaNeve, said Monday.
Rental-car companies are "becoming a little more cautious given the
uncertainty in residual values," he added. Rental-car companies
keep a close eye on the resale value of cars and trucks; a glut in
used cars can lead to unexpected losses
Fiat Chrysler's fleet sales sank 15% in June, with rental
deliveries at its flagship Jeep brand down by almost half.
Enterprise, one of the leading car-rental firms, reduced its
vehicle purchases in the first half of the year compared with 2016,
said Kurt Kohler, a senior executive in charge of the rental
company's fleet acquisition. He said signs of declining
used-vehicle prices heading into the year prompted Enterprise to
narrow its shopping list.
"The market started to move on us, so we pulled back a bit," Mr.
Kohler said. "The car segment already had been declining, but we
also saw pricing coming down on SUVs and trucks. That affected how
much we wanted to buy."
Alan Batey, president of GM's North America region, said an
unexpectedly severe downturn in consumer demand for sedans has made
it more difficult to ease rental sales, because the rental business
would typically help make up the shortfall. "It has tested our
commitment" to the strategy, he said, forcing GM to make "tough
decisions" to reduce passenger-car production this year, which led
to thousands of layoffs at its factories.
Write to Mike Colias at Mike.Colias@wsj.com and Adrienne Roberts
at Adrienne.Roberts@wsj.com
(END) Dow Jones Newswires
July 05, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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