Slump in Auto Sales Extends to 7th Month -- WSJ
August 02 2017 - 3:02AM
Dow Jones News
By Christina Rogers and Mike Colias
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 (August 2, 2017).
Auto sales slid in July, the seventh month of a slowdown marked
by manufacturers' reluctance to sell discounted cars through leases
and car-rental chains.
Sales fell 7% last month, compared with a year earlier,
according to Autodata Corp. Research firm J.D. Power said
manufacturers typically pull back on sales incentives after the
July Fourth holiday, "but this year elevated inventory levels
coupled with the sales slowdown, have compelled them to maintain
aggressive discounts throughout July."
Detroit's car companies felt the brunt of the decline, with
General Motors Co. reporting a 15% sales drop in July compared with
the same period a year earlier. Sales at Ford Motor Co. and Fiat
Chrysler Automobiles NV slid by 7.4% and 10%, respectively. All
three were below analysts' expectations.
Despite falling sales, the three companies aimed to protect
their bottom lines by trimming incentives for car leases. Auto
makers have banked on such discounts to keep consumers' monthly
payments low as sticker prices soared because of a market shift to
heavier trucks and sport-utility vehicles, and technology aimed at
making cars smarter, safer and more efficient.
Manufacturers in July also edged away from discounted,
less-profitable rental-car sales to companies such as Hertz and
Enterprise.
The moves reinforce a newfound discipline for domestic
manufacturers that have ridden 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
falling gasoline prices and surging demand for profit-rich trucks
and SUVs.
Overall industry demand softened over the first seven months of
2017, falling about 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.
Sales to government fleets, commercial buyers and rental-car
companies have fallen 7.8% in that period, according to J.D. Power,
while sales to retail customers at dealerships fell less than
1%.
Leasing accounted for 31% of all retail sales in the first half
of 2017, falling slightly from last year's record of 32%, according
to Edmunds.com. That number dropped to 29% in July, the lowest mark
of the year. The declines appear modest, but represent a potential
tipping point.
"For a long time, we were all wondering where the ceiling was
for leasing," said Jessica Caldwell, an analyst for Edmunds.com.
"Now, it has been hit."
The U.S. auto market, which topped a record 17.5 million units
in 2016, has grown seven consecutive years. Analysts expect that
growth streak to end in 2017 as consumers and companies need fewer
vehicles following a boom in sales during recent years.
The pressure on the leasing business comes as an increasing
number of leased vehicles return to the market, causing resale
values to tumble. That has prompted big auto lenders like Ally
Financial Inc. to cut back on leasing.
Some auto makers and their lending arms also are dialing back
leasing to avoid being stuck with a glut of vehicles at depressed
prices once their lease period ends, typically after three years.
They are also doing so after incurring higher costs in recent
months to keep lease deals attractive.
The average spending on lease incentives climbed to $4,445 a
vehicle in first half of 2017, up from $3,722 for the same
January-to-June period a year ago, according to Edmunds.com.
"It does cost us more to hit those payment points" than it did
three years ago, said Ford U.S. sales chief Mark LaNeve. Ford is
increasing monthly lease payments on certain models, including the
high-volume Fusion sedan and Escape crossover, to help counter the
fall in used-car values.
Ford's financing arm began pulling back on leasing last year,
after reporting red ink tied to the business. The move limits
exposure to falling used-car prices but also dents new-vehicle
sales.
GM plans to reduce leasing to between 25% and 0% of its sales
volume, from 31% in the second quarter finance, chief Chuck Stevens
said during a conference call with analysts last week.
Write to Christina Rogers at christina.rogers@wsj.com and Mike
Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
August 02, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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