This Week in Car Buying: Snow slows sales as economy cools; AutoNation to order fewer cars; Inventories thin out
The massive East Coast blizzard impacted January new car sales as Kelley Blue Book data predicts a drop of about 3 percent year-over-year to about 1.12 million units. The dip in sales also reflects a 32 percent drop off in volume from a red-hot December.
“This month’s new car sales were impacted by the historic blizzard Jonas that covered much of the East Coast in snow,” said KBB analyst Tim Fleming. “Since the blizzard hit densely populated areas during a weekend, when dealerships see the most foot traffic, Kelley Blue book anticipates sales to dip slightly. However, any lost sales will likely be postponed until February. January is typically the slowest month of the year for automotive sales, as consumers recover from the holiday seasons and pull forward many purchases into December to take advantage of available year-end deals.”
The only two makers to grow market share were Honda and Fiat Chrysler Automobiles. Honda’s share of sales grew from 8.9 to 9 percent, while FCA expanded from 12.4 to 13 percent of the market. Honda’s growth is attributed to strong sales of the all-new 2016 Civic. As for FCA, “Low gas prices and growing consumer interest in utility vehicles helped Jeep grow nearly 25 percent last year and 2016 should also be strong for the brand,” Fleming observed. “However, incentive spending for the brand has been growing in addition to days to turn, indicating that consumer demand may be slowing to some degree.”
The only segment to see growth in January over last year is the compact crossover SUV category, which expanded by 1.8 percent, while compact cars had the biggest drop of one percentage point.
Economy cools, interest rates stable
While winter storm Jonas disrupted car sales in January, economic data released by the Federal Reserve showed that the economy was slowing last month, expanding only 0.7 percent. That weak performance led to an announcement that there will be no immediate changes to current interest rates which were raised from virtually zero to 0.25 percent. The Fed had been signaling that there were more rate hikes in the future, based on earlier economy growth in 2015 as well as other indications like record car sales.
The fact that sales are leveling off and the economy is cooling, prompting the Fed to keep a lid on rates until there are more signs of a more robust recovery. That means that auto loan rates are likely to remain at current levels for the foreseeable future.
AutoNation to order fewer cars
Mike Jackson, head of the nation’s largest dealer chain, AutoNation, has warned of a sales plateau and is now putting actions to his words as the company will be ordering fewer new cars as it heads into 2016. Jackson told Reuters that the cutback in new vehicles is designed to trim inventories on his lots by 10 to 15 percent. Jackson also reported that AutoNation’s inventories are 13 percent higher than year ago.
“In a growing market, you can be aggressive,” Jackson told the news organization. “Once you hit a plateau you have to bring those inventories into line. We have changed our forward orders” for new vehicles. Low oil prices are helping to fuel interest in trucks and SUVs, but Jackson says the market is soft for high end luxury vehicles and small cars. While he doesn’t expect 2016 to break last year’s record sales, he expects the industry could sell 17 million units this year.
Inventories thin out
Showing remarkable discipline in the face of last year’s record sales, the auto industry continues to manage its inventories closely, not wanting to overproduce and then having to rely on costly incentives to move the sheetmetal. As of January 1, the industry entered the New Year with a 61-day supply of vehicles on the ground, according to Automotive News. That number represents how many days it would take to sell vehicles in stock at current sales volume. A 60-day supply is considered ideal.
Subaru continues to run the tightest inventory in the industry with just a 17-day supply. Mitsubishi has the most vehicles in stock with a 104-day supply, the trade journal reported. Among major manufacturers, FCA and Volkswagen both had an 81-day supply each, while Toyota and Jaguar Land Rover were the lowest with inventories of 41 days each.
Reflecting the current trend towards larger vehicles amid low fuel prices, two models with the highest days’ supply are the Fiat 500L at 229 and Ford’s subcompact Fiesta at 146.
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