The business sections of the news media may be dominated by gloom surrounding prospects for the global economy and continued turmoil in financial markets, but the US vehicle market is showing some strength in September.
JD Power said that new vehicle retail sales for September ‘continue to improve, with the selling rate expected to be much stronger than in August’. While the economic picture has deteriorated in recent months, the recovery to the market continues to reflect support from pent-up demand as the market has tracked way below trend in recent years to raise the average age of vehicles in use to new highs. And there is also a stock replenishment issue for some manufacturers in particular, after shortages earlier in the year that followed supply chain disruption and the Japan quake.
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September new vehicle retail sales are projected by JD Power to come in at 842,400 units, which represents a seasonally adjusted annualised rate (SAAR) of 10.3m units. This marks the first time the retail selling rate would be above 10m units since the 10.8m unit rate in April. Retail transactions are the most accurate measurement of true underlying consumer demand for new vehicles, JD Power says.
“Coming off a solid Labor Day sale, retail sales exhibited unexpected strength in the second week of September, as the recovering inventory levels have helped to bring buyers back into the market,” said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates. “However, incentive levels remain flat compared with August and the economy remains a concern, so the sales pace in the second half of the month is expected to give back some of the gains.”
Total light vehicle sales in September are expected by JD Power to come in at 1,038,700 units, which is 9% higher than in September 2010. Fleet sales are expected to be down 1% compared with last September, but will account for 19% of total sales. The total market SAAR is projected at 12.9m units, which compares with 12.1m units in August and 11.7m in September 2010.
Given the relative strength of September, JD Power is maintaining its forecast for light vehicle sales for 2011 at 12.6m units, a 9% gain on 2010. For 2012, the outlook for total light vehicle sales remains at 14.1m units, though the forecaster warned that a ‘high level of uncertainty’ remains.
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By GlobalData“The uncertain global environment, specifically the debt troubles in Europe, continue to be the major source of downside risk in the US economy and automotive markets,” said John Humphrey, senior vice president of automotive operations at JD Power. “Until a level of stability is reached globally and consumer confidence is returned, the US automotive selling pace is not expected to return to pre-recession levels.”
JD Power’s analysis of the market is also in line with what others are saying. Late last week, Ford’s George Pipas also noted that September sales are coming in strong, though not strong enough to take the full-year above 13m units. He also said that there is now more uncertainty than at the beginning of the year about the pace of the economic recovery. “You can’t ignore the economic data coming in,” he said, but Ford is planning on slow economic growth – rather than recession – over the next several quarters.
Pipas also noted that some predictions of increased inventories leading to bigger discounts have not yet materialised. “There is no evidence of incentive escalation,” he said.
NA production up this year
Through August 2011, light vehicle production in North America has increased to 8.5m units, up 8% from the same period in 2010. The Detroit 3 OEMs have increased production by 16% year-to-date, while the Japanese manufacturers have lost 8% – due to the parts shortages from the earthquake in Japan back in March. European OEMs are up 38% for the same period, as a result of added production of the BMW X3 and Volkswagen Passat in North America, as well as strong demand for the new Volkswagen Jetta.
JD Power said that the 2011 North American production outlook remains on track for 12.9m units, an increase of 9% from 2010. Fourth quarter 2011 production output is expected to reach 3.3m vehicles, which is an increase of 11% from the same quarter in 2010.
“Continued inventory stock replenishment and Japanese OEM recovery is responsible for the large year-over-year increase relative to the lower level of recovery in vehicle demand,” said Schuster.
“As inventory normalises into 2012, growth in production levels is expected to slow to a pace more consistent with sales.”
