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Auto Sales Down for August, Has Demand Peaked?

iconSep 6, 2016 14:57
Source:SMM
​U.S. Automakers sales numbers were down substantially in August, not that a drop wasn’t wholly unexpected — the industry has been growing strongly in recent years and at some stage was bound to peak.

by Stuart Burns on SEPTEMBER 6, 2016

U.S. Automakers sales numbers were down substantially in August, not that a drop wasn’t wholly unexpected — the industry has been growing strongly in recent years and at some stage was bound to peak — but the scale of the drop was enough to make the market sit up and notice.

According to the FT, Ford’s drop was the first to report, down 8% year-on-year for the month of August to 214,482, GM was down 5% to 256,429 vehicles and Volkswagen, possibly suffering from the emissions scandal, was hit the most down 9.1% to 29,384 vehicles. Of the majors only Fiat Chrysler bucked the trend, buoyed by a strong line up of SUVs to post a 3% increase to 197,000.

The FT puts a rather gloomy picture on the results, suggesting repeatedly that the figures show the boom has come to an end, but some analysts put a more realistic slant on it saying at a seasonally adjusted number for the year of about 17.2 million is still robust and with average transaction prices continuing to climb, up 2.6% in August, automakers are doing rather well.

Soft Jobs Data

Which is just as well, because recent U.S. jobs data is softer than expected. The U.S economy created 151,000 jobs in August, down from 255,000 in July after two months of robust gains. Both the manufacturing and

Construction sectors saw a decline in hiring although unemployment held steady at 4.9%. The combination of weaker auto sales and lower new hiring will almost certainly put back any Federal Reserve rate rise until later this year.

Not that the auto figures should be taken as sign the economy is fragile. Ford gave the most negative commentary to the release of their numbers saying “We think sales have reached a plateau and at that plateau we will see some month to month volatility” while Ford VP of marketing, sales and service Mark LaNeve is quoted by the FT predicting that for the rest of the year, “We continue to see … the industry still running at historically high levels but down on 2015. For 2017 we see vehicle sales strong but at a lower level than this year” – so not so much a plateau as a peak, then. GM on the other hand was more upbeat saying they saw a strong second half of the year and potentially another record year for the industry.

Automotive is one of the most important industries for the US economy, according to the Center for Automotive Research (CAR), the auto industry supports either directly or indirectly some 7 million jobs, pays $500 billion in annual compensation and generates $200 billion in state and federal taxes including $65 billion in personal tax revenues. In short we all benefit financially from a healthy auto industry.

Most independent analysts agree auto sales have probably peaked, the backlog of demand created by the financial crisis has been satiated for now, interest rates and, hence, financial incentives have been — and continue to be — as good as they can get and unemployment is historically low. There is a limit to how many new cars the U.S. can absorb when economic growth can be said to be no more than steady.


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