US Sales were up 16% for May 2012. SAAR comes out at around 13.8 million for the month, which threw some cool water on analysts expecting the 14+ million pace to continue. What is worrisome is that too many analysts took their numbers up on a strong April that clearly showed some flattening signs as did May. Whenever I see mid-month weakness in the numbers followed by an ultra-strong close, I see slowing demand. Jan – Apr tracked at a 14.5 million pace, and May has pulled that down to 14.3 million. While bulls had rushed to push some numbers up around 15 million, more experienced market watchers have held closer to 14 million forecasts. Why does it matter?
Overall the industry will be in great shape anywhere between 14-15 million units in 2012 and suppliers face serious supply chain stretch if we get above 14.5 million. However, some benefit more than others from hyper growth of more than 15%. Companies like Chrysler/Fiat need the volume for to generate enough cash to cover Fiat’s disastrous position in Europe while on the other hand the Japanese automakers are position to retake significant chunks of market share anywhere between a 14 – 15 million market. For the Japanese Toyota has the most to gain regardless of SAAR while Nissan is more likely to moderately outpace the industry.
As I mentioned last month, quality of sales will trump volume as we reign in the pace of rebound. Volume from any of the new products in the sedan segments should be preferred over clearance mid and large trucks.
INCENTIVES UNDER CONTROL
As for incentives, I look at Edmunds True Cost of Incentives SM monthly and this month I don’t see anything too worrisome. As expected, Honda and Toyota are up double digit after cutting outlays last year as they faced lack of inventory post-earthquake. Interestingly Nissan was up only 1.8% YOY, surprising when you know they had a pretty strong May “tent sale” program this year which they postponed last May. We do see the trend of Chrysler, GM and Ford creeping up, not an issue if the market picks up pace over the summer, but could be a problem if we settle in at this current pace.
If the market comes back to 14-14.5 million levels, inventories are actually pretty tight, around 50-55 days’ supply. At May sales levels, it’s at around 60 days, the industry target. Here’s why the forecast is important. Take GM for example, they are building out the old truck platform, accumulating more than 90 days of inventory at current rate. They’ve indicated they will increase this number, posing a risk if we see the market settle down in the <14 million range. Based on past experience, if GM gets stuck with too much stock we should watch for price cuts and incentives. This is definitely not what they need just before a new product launch and not a pretty prospect as the Dodge and Ford lineups age another year.
Overall, Asian and European makes remain well within safe bounds for inventories, regardless of where the market goes. Of the American brands keep an eye on a build-up of both trucks and cars at GM.
We heard a lot from Chrysler early in the year that they were meeting their fleet obligations early in the year – with >30% of sales going to fleet. Those numbers should come way down in Q!2 as Toyota inventory allowed it to meet fleet contracts in April and May with sales of 15% and 13% respectively. Toyota management indicated it has met the bulk of past commitments, meaning I expect them to settle back to the 10% level for the next couple of quarters. Now, will we see Chrysler come back down to closer to 20% in Q2, they should as they focus on the retail launch of the new Dart, the most important product for them this year.
J3 came roaring back and well positioned
Euro brands led by VW surge, with luxe brands OK
Strong US brand sales, but lag J3 comeback
Watch out for GM inventory, Nissan incentive spending and Chysler and Ford fleet trends