Car Sales Crash, But It’s Complicated

Despite what you might think, automakers did not “cut back” on fleet sales. But keep an eye on Uber & Lyft.

Automakers sold 1.144 million cars and light trucks in January, down 1.8% from a year ago. But the “seasonally adjusted annual rate” (SAAR), the standard measure for monthly new vehicle sales, came in at 17.6 million units, right up there with 2016 annual sales of 17.55 million units, which had been a record, though all US automakers, and some of the largest foreign brands booked declining vehicle sales in 2016.

These sales are cars and light trucks that dealers delivered to their retail and commercial customers and that automakers delivered to large fleet customers, measured in vehicles, not dollars. It’s raw and unvarnished data, warts and all.

And there were some big warts. Compared to January last year, car sales collapsed for all three US automakers, and the largest Japanese automakers didn’t do much better:

  • GM -21.1%
  • Ford -17.5%
  • Fiat Chrysler -35.8%
  • Toyota -19.9%
  • Honda -10.7%
  • Nissan -9.0%

For all automakers combined, car sales sagged 12.2% from a year ago. Light trucks sales, which account for 63% of total sales, rose 5.7% but weren’t quite able to fill the hole in car sales.

The media was busy explaining that this car sales debacle came about because US automakers had somehow “cut back” on fleet sales to focus on profitability.

Alas, at GM, overall vehicle sales fell 4% in January, compared to a year ago. Retail sales fell even more: 5%. Car sales plunged 21%. But total fleet sales rose 1%!

GM explains that deliveries to rental companies edged down 1%. But government deliveries soared 12% and commercial sales inched up 1%. So fleet sales weren’t the problem at GM. Retail car sales were!

At Ford, overall vehicle sales edged down 1%. Retail sales rose 6%. Fleet sales dropped 13%. Ford had its own explanation for that: Ford didn’t cut back fleet sales to focus on profits, no way, not in this environment, when retail sales are getting propped up by costly incentives. Instead:

The fleet decline reflects a strong year-ago comparison, with fleet customer orders front-loaded at the beginning of 2016….

In other words: It wasn’t Ford walking away from selling to fleets. It was fleet customers cutting back their orders to Ford.

At Fiat Chrysler, overall vehicle sales fell 11% in January. Unlike GM and Ford, even its trucks sales fell (-5.6%). Last year, it discontinued building the Dodge Dart and the Chrysler 200 due to dismal car sales. Now car sales took an even bigger hit (-35.8%). The media reported this fiasco with a positive spin – that the company “has been aggressively cutting its fleet sales.”

FCA, Ford, and GM have all announced plant closings and layoffs, due to plunging car sales and surging inventories. Trucks sales have been strong. But car sales have been terrible.

They’re terrible despite huge incentives. Average incentives by manufacturers rose 21.6% from a year ago to $3,635 per vehicle according to estimates by TrueCar’s ALG. Incentives were either cash incentives or financing incentives, with 10% of all new car loans being “interest free” – in lieu of some or all of the cash incentive.

Rising incentives to keep sales from declining even more steeply isn’t a good sign. But that’s the paradigm these days.

One thing we know from GM’s and Ford’s own statements, and from FCA’s struggles: they’re not purposefully “cutting back” on fleet sales.

If fleets need vehicles, they’re going to buy them. If they don’t need as many vehicles, they’re not going to buy them. If FCA decides to cut back on its fleet business, its potential customers are going to buy their units from some other automaker. There can only be a shift from one to the other, a market-share thing.

So overall car sales are not down because automakers “cut back” on fleet sales. They’re in a deep funk for several reasons:

1. American consumers have gravitated toward light trucks;

2. Retail sales of cars are getting squeezed by a flood of off-lease vehicles that customers turn in at the end of the lease, and that are sold via auctions to dealers on whose lots these cars compete with new cars, but at a much lower price point;

3. And rental car companies, are trimming back their orders for reasons of their own, under pressure from a variety of directions, including rideshare companies, whose drivers own their own cars and buy them via retail sales not fleet sales. For automakers, the arrival of the rideshare industry means a welcome shift from fleet sales to retail sales. But it’s still not enough to stop the decline in car sales.

Wall Street hocus-pocus has done an awesome job. Read…  Dow Companies Report Worst Revenues since 2010, Dow Rises to 20,000 (LOL?)

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  33 comments for “Car Sales Crash, But It’s Complicated


    there are many not so well-hidden bits of ground around houston. filled with cars.

    where will all this inventory eventually go? that is what i would like to know.

    • Wolf Richter says:

      Houston new vehicle sales have plunged 20% to 300K in 2016, back to 2012 levels. That’s a massive drop. No one was ready for that. I don’t have the January numbers yet for Houston, but the dealer association reported a 12% year-over-year drop for December 2016. So with this kind of sales decline, inventories are bound to pile up.

      The dealers will work through these vehicles – lots of discounting and lots of work. They probably slashed their orders months ago. So fewer new vehicles are coming in. Eventually, this problem will settle down. But it’s a very costly problem to have. What they really need is a big burst in sales, but I doubt they’ll be getting it soon enough.

      • Tom Kauser says:

        I drive thru a ” motor city” on the way to blue box employer and you can get a corvette in rainbow just sign, please sign! (A lot of over priced muscle cars airwear)?
        Another industry in rhyming trouble?

  2. akiddy111 says:

    It’s sometimes useful to read the quarterly earnings reports of Companies like AN, GPI, SAH, LAD, KMX et al. to get a feel for revenue and profit growth in the industry as well as the incentive environment.

    2016 was a slower year for those larger dealerships than any of the previous 4 years. Operating profit per vehicle seemed to be down almost across the board.

  3. Cyrus says:

    The bright spot “But government deliveries soared 12%.” You guys realize this is our tax money being lavishly spent, right?

    • Thorny Rose says:

      Lavishly LOL> Prove it. Enough of the ridiculous commentary. The Gov buys all kinds of things routinely. Wake up. There is no Gov car buying conspiracy. Grow up and move on. Please. You are no longer funny and never were. US businesses are also Gov customers and there is a routine schedule both Gov’s and companies have to replace worn equipment.
      Ta ta!! :)

      • nick kelly says:

        A conspiracy by definition would be secret buying. The guy isn’t saying that. He’s saying that government spends money less carefully than the individual consumer.
        With control over maintenance, and presumably no need for prestige or keeping up with the Jones, a government vehicle should remain in service at least 5-7 years. Are they?

        • Mike G says:

          I used to work for a state government entity and the dept fleet vehicle was a 15-year old clapped-out Ford Tempo. No lavish spending there.

        • nick kelly says:

          In my city all the managers drive large trucks or SUVs. Most of the trucks look like they’ve never had anything in the box.
          But let’s ask the others- how many govt employees do you know who are driving 1) a pretty new vehicles or 2) clapped out 15 year old ones?

        • nhz says:

          In my city the politicians and managers from the regional government drive Porsche Cayenne or similar big BMW SUV’s, if they are not provided with a Benz luxury sedan with private driver. The narrow streets in our city center around the government office don’t have parking space for those big SUV’s, so they block the pavement but hey, people who walk don’t count nowadays. For the record, it used to be ‘not done’ to show off your wealth/success in Netherlands by driving an expensive car, but together with financialization that went out of the window apparently.

          At a recent fair about public safety, the Italian police showed off their Lamborghini police cars (of course, not all police drive a Lambo or Ferrari there…) and the Dutch police are again evaluating driving Porsche 911 instead of a more modest police car (despite a 130km/hour speed limit that only applies on some stretches of road, they still need cars that can easily do 250 km/hour?).

          And why not, money is free for the government thanks to Mario and his mob; government worker salaries in several sectors are up 5% this year, with inflation supposedly around zero ;-(

      • Cyrus says:

        Maybe you should learn to read “Thorny Rose”. The article says:

        GM explains that deliveries to rental companies edged down 1%. But government deliveries soared 12% and commercial sales inched up 1%.

        So, while business are buying less, or buying just a bit more, governmental sales soar to 12%.

        When businesses tighten their spending, it means they forecast that their maybe problem ahead, or don’t see any profit from new vehicles. At such time, government buys 12% more. What does that tell you? Of course if you are a government employee, you’d love the private sector to pay for your new shiny car.

        • MP says:

          Or perhaps there are “reliable relationships” between industries and their partners in government who provide financial sustenance, cover and/or incentives to “stay” in business.

          Read: “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill) by
          David Cay Johnston

      • Cyrus says:

        Sorry, I meant “Maybe you should learn to read more carefully”

      • Chris says:

        I don’t know about the US but this is something that’s been done in many countries around the world, mine included (Jamaica). In the past, politicians would buy overly expensive and luxurious vehicles for their “official duty” and buy it back from the government for a fraction of the value when they were leaving office.

    • Kent says:

      Police cars to stop them terrorists and keep us safe.

  4. Dan Romig says:

    #2 is what my folks have been doing for many years, and I would bet it will continue to increase as a trend. A three year old, low milage lease-back Lexus can be had for a hell of a lot less than a new one, and most of the lease-backs come from the same dealership that offers the choice between new and ‘previously owned’. The Twin Cities has two Lexus dealerships, and they are both owned by the same person/company.

    One news item that caught my eye was that Volkswagen has surpassed Toyota for most cars sold, even though they have had the diesel emissions trouble. Volkswagen sure spends money on TV ads, and they really hit the European football (soccer) halftime slots. Targeting soccer moms, eh?

    • Sporkfed says:

      Worldwide sales not US sales.

    • nhz says:

      VW surpassed Toyota: crime pays!! In Netherlands too VW sold the most cars, especially those relatively small dirty diesel cars that are strongly discounted thanks to exhaust numbers (in Netherlands car tax varies between almost nothing and over 40%, based on stated CO2 production relative to other cars in its class).

      The customers could not care less about buying a dirty car, it’s all about price. VW knows this. We need to tax these VW ‘victims’ to make up for their artificially cheap and dirty cars, otherwise people will never learn. Of course, this is never going to happen and car buyers know that they get away with buying the dirtiest car on the lot (and play the victim too …).

    • opalchip says:

      It’s also because VW is huge in the China market, although they are fading there as the Chinese made vehicles get better and better. (I drove a Great Wall brand little SUV in China and I was pleasantly surprised. Luckily for the U.S. auto makers, they won’t be selling them here any time soon.)

  5. Michael says:

    VW is dumping cars at 0% interest since the diesel fiasco. It is hard to beat Santa Claus.

  6. robt says:

    Are those figures consumer sales or floorplan ‘sales’?

    • Wolf Richter says:

      These numbers that the automakers report monthly are actual unit sales (sold and delivered) by their dealers to consumers and companies, and deliveries by automakers to their large fleet customers. They include leases. They also include sales to company employees under their special employee purchase programs, but those numbers are small.

      “FLooplan” is a financing method of vehicle inventory, where each individual vehicles serves as collateral for the loan. When a new vehicle is invoiced by the manufacturer to the dealer, it enters the floorplan mechanism, and when the vehicle gets sold, it gets pulled out of the floorplan (is paid off). This is automated.

      Nearly every dealer funds their new vehicle inventory that way. For example, if you have 300 new vehicles in stock, as a larger Ford dealer might have, and the average cost is $35,000, the inventory would be valued at $10.5 million. This is usually funded by floorplan financing (by a captive finance company such as Ford Motor Credit or other lender). It’s a number that changes on a daily basis, as new vehicles come in and as those in inventory are sold.

  7. Coaster Noster says:

    Thanks, again, Wolf, for the numbers and analysis on an important segment of the economy.
    I have been a light-truck owner/driver since 2001, and I am now on my third Ford Ranger. Automakers are competing on “gadgets” (e.g. keyless ignition, backup camera) but there is nothing compelling about new vehicles where you have to learn a whole new set of instructions. I can barely rent a car and drive off…I have to study for ten-twenty minutes. In addition, as millennials grow richer, they see no reason to put money into an object that sits 95% of the time. Societal change. The status for passenger cars is diminishing, and trucks cost less to insure. Insurance cost is more important than MPG costs.

    • Frederick says:

      For now anyway Just wait till crude is 150 a barrel again Lots of these gas guzzlers will be up off the road real quick

    • robt says:

      Keyless ignition: I had that in my 1956 Chev – just never used the lock position – and never used a key. And it never got stolen – the good old days, or maybe just lucky.
      Actually, I remember that car as the best one I’ve ever had – could go through the bush, never got stuck, and I bought it for 600 bucks in 1960, with only a few thousand miles on it …

  8. Meme Imfurst says:

    It smells like channel stuffing. Cooking the books has become a normal course of business and memories get shorted everyday, like two day tops. The FANGS do it, for example with 350K click bate unique name posts by one guy. The FED does it. It is accepted accounting practices now.

    Consumers are tapped out. Municipalities are tapped out. So who is all this buying attributed to?

    The local GMC and Ford dealers are literally giving away these big ass
    car-trucks that can barely get down the streets without taking the mirrors off the parked cars. Tax and tag, and drive out on your ‘good’ name and no money down. Drivers trying to peek over the hood and text. This is a form of channel stuffing. Repo man waits.

  9. RD Blakeslee says:

    A factor I am sensitive to as I drive light truck based vehicles that average twenty years old.

    Part of the decline in vehicle sales must be due to the fact that light vehicles are lastibg longer:

    “Many lenders are turning off-lease vehicles into certified pre-owned sales. Barrett Teague, vice president of lender solutions for Black Book, said that compared to 15 years ago, lenders today are paying more attention to depreciation. Moreover, they have access to data that says a vehicle is lasting longer, say even 10 years, he said.”

  10. opalchip says:

    btw – a bit OT – but I was in San Francisco for 6 weeks recently and rented one of the new (larger) Fiat 500’s. It was an awesome city car. Very powerful, great handling and comfy interior AND parks in those spaces between driveways where others can’t fit :) . On the highway, not so great – but you get used to that feeling of impending doom pretty quickly.
    Will definitely rent one again next time.

  11. Check back in five years.

    The car industry is kaput. A car is the hole in the ground the owner pumps the oil into.

    … and borrows for the privilege.

  12. R Davis says:

    In 1800 6 babies were bore to a fertile female.
    Today, 1.3 babies are born to a fertile female.
    = Today, 2017 .. it takes 4 fertile women to produce the same amount of babies as 200 years ago.
    Go figure on which planet the population blow out is going to take place.
    It’s for sure not going to be planet Earth, hey.

  13. Stingray says:

    I bought brand new 1968 camaro ss 396 4 speed 3,600 monthly payment was 96. Today i cant afford new camaro

    • yamahog says:

      Cars are an interesting example. For the most part, they’ve gotten substantially better while keeping costs more or less inline.

      V8 Camaros are expensive nowadays because they appeal to the sort of people who were buying Camaros decades ago. The average age of people buying V8 pony cars tends to be in the early to mid 60s and the cars are priced accordingly.

      Now the ’68 Camaro SS with the 4-speed was an unusually fast car but it’s competitive with cars that cost about the same amount – a 14.5 second 1/4 mile.

      $3,600 in 1968 has the same purchasing power as about $25,000 in 2017. A 2016 Ford Focus ST can be had for 21k and that does a 14.5 in the 1/4 as well. A 2016 Camaro V6 can do a 14 flat and a Subaru WRX can hit the high 13s with good tires and hard launch, both of those are roughly 25k but probably closer to 27k OTD.

      But the WRX and Focus ST have way more utility in low traction situations, all the new cars can get 30 mpg on the highway and I think a well-tuned 396 would struggle to get 20 mpg. The new cars are emissions compliant, safer, and definitely faster around a track.

      Now, it’s probably harder for young men to afford expensive cars but that’s not because 14 second 1/4 mile cars have become affordable. In fact, it’s just the opposite: there are more than ever.

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