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Friendly US Dec Auto Sales: Hope Springs Eternal…or Annual?
US Auto Sales: 05 Jan 2010, 11:17 PM ET
SAAR rates keep the sequential beat going, but the month and the year still look more like 1982, with many of the same questions being asked and the major variables a little too similar for comfort.
As usual, the real test still lies ahead in the spring selling season as the jobs picture, ongoing housing fallout, and state of the consumer send a few more months of data as to how the multi-year net worth pain, the housing crisis, and the still-ugly employment picture is taking its toll on balance sheets, replacement cycles, and confidence levels.
Ford ends year on a good note while GM feels the pain of non-core brand wind-downs. Honda has now overtaken Chrysler for the #4 spot in 2009 and Hyundai + Kia’s continuing growth may very well allow it to grow past Nissan in 2010 for the #6 spot.
The good news out of the December industry auto sales results was that the sequential SAAR rates improved yet again now for the third consecutive month to around mid-11 mm (see related US Nov Auto Sales: Stabilizing at Low Levels? 12-01-09). This was also the second consecutive month outside of the CARS program impact that YoY sales increased in 2009. The bad news is that full-year 2009 total vehicle industry sales of 10.6 mm units, including medium and heavy trucks were -21% YoY and this is still the lowest level of sales since 1982. The year 1982 was also one where Detroit was in a virtual state of collapse. Dramatic auto industry restructuring actions had dominated headlines, a bailout of Chrysler was a not-too-distant memory as the company continued along a path of multiple financial overhauls from 1979, and the industry was still adjusting to the after-effects of oil shocks (notably the cumulative effects from the 1973-1974 oil crisis and embargo and later the 1979 oil shock). In other words, 1982 had a lot in common with 2009: recessionary economics, high unemployment, lingering oil price fears, financial crises, changing consumer preferences, and even political change.
At the risk of belaboring historical comparisons, in 1982 a wave of imports was starting to give way to new groundbreaking transplant facilities (Honda back then) and today this also has some parallels in the ongoing expansion of Korean transplants, Volkswagen on the way with greenfield capacity, and Toyota also increasing its NA production mix while reducing imports. There is also talk of more Japan 3 small car and even luxury car production coming to the US and Mexico as the Japan Big 3 wrestle with a strong yen. The theory is that small car production such as the Honda Fit will need to be moved here if the Japan 3 are to better match currency risk in terms of sales and costs. Mexican light vehicle production also will be a lingering threat to the Detroit 3 if Japan ends up expanding its production base there. That will keep the heat on the US OEMs given the UAW restriction negotiated to limit expansion of Mexican production and to bring the next small car to the US.
In other words, the parallels between 1982 and 2009 are both positive and negative from here with respect to where it can take us in 2010. The worries in both periods were rooted in intensifying competition in a global industry that was changing rapidly, major questions around the direction of the economy, and serious worries over the direction of the price of oil. Oil was going to be a key driver of changing fleet plans and consumer preference in both time periods. In 1982, the rise of the small car was here. In 2010, the rise of the small car is in theory here, but oil has to support a heavy shift of consumers across the board to a group of product segments that all the OEMs are focusing on. In the absence of a hefty gasoline tax to assure that shift, the twisted “hope” may be that oil stays high and continues to alter consumer habits so this new product focus will pay off. It will largely take status quo in commodity supply and demand to drive demand for small cars and hybrids. After all, even the diehard environmentalists in Congress draw the line at heavy gasoline taxes since their idealism does not extend to pissing off voters and losing votes.
So on the one hand, the hope may be that a plunge in oil prices (that has been one scenario kicked around) can drive the consumer and economic engine as the US saw when the bull market came to the US after the 1982 trough. Another scenario is that oil prices will remain high, geopolitical risks uncertain, and consumers will justify the heavy investment in alternative fuel technologies and shift toward smaller car platforms. Back in 1982, both Chrysler and Ford rallied from their troubled position on the back of new products (think Chrysler minivans and later Ford Taurus) and a healthy economy. GM of course began its multi-cycle slide that ended this past year in bankruptcy court. As we make the turn out of a year of catastrophe for the industry, there is no getting around the fact that the post-1982 scenario on the consumer as well as oil holds risks and opportunities. A double dip (global or developed markets) might send oil sliding and leave the OEMs out of position on its product mix and also at a point where total SAAR volumes disappoint. The market would also most likely see lingering tightness in consumer credit that will not ease pressure on consumer durable industries or answer the questions around whether the replacement cycle has gone through a secular (or at least multi-cycle) shift.
With respect to the decent showing and sequential sales and production strength out of the OEMs as we enter 2010, there is an understandable near-term enthusiasm (see related US Autos Snapshot: December 2009 12-10-09). Of the moderately more bullish forecasts, some of them project levels in the 12.5 mm area for 2010 – an 18% YoY improvement – but that will still only be the sales level achieved in 1991 or nineteen years ago. That 1991 level was during a recessionary trough after yet another brief oil shock and war, a banking crisis, and a real estate crunch. Sequential volume improvement is better than the alternative, but absolute levels of sales volume are most critical and at mid-12 mm volume environment we are looking at a lost decade or two in terms of volume. The theory for now is that there is a lot of pent-up demand at these levels just given the natural replacement cycle needs, and if there is positive upside surprise, the dramatic restructuring of the supplier chain and the major OEMs will bring back a very solid rebound in profitability even at much lower average volumes over the course of the next cycle.
For now the SAAR direction is good and the numbers are turning up so they at least keep the bull vs. debate going. Overall, the December sales rate of mid-11 mm units was an improvement sequentially, but results also got a lift from higher fleet sales especially at Ford and Chrysler. GM total sales were impacted due to lower sales to the fleet channel and the demise of non-core brands. Hyundai + Kia, Honda, Toyota and Nissan all recorded market share gains as the industry sales volume increased 7% YoY on a DSR basis. On a full year basis, GM and Chrysler lost the most market share and Ford recorded its first annual market share increase in fourteen years. The Top three rankings remain unchanged with GM still #1 followed by Toyota at #2 and Ford at #3. Honda for the first time has overtaken Chrysler for the #4 spot pushing Chrysler to #5. The #6 spot remains heavily contested with Hyundai + Kia rapidly closing the gap with Nissan, who has still managed to hold on to that spot for 2009.
GM: lower fleet sales and non-core brands weigh on total volumes
GM reported a December total vehicle sales decline of 12% on a DSR basis and that was driven primarily by a 33% decline in fleet volumes and a 55% sales reduction of non-core brands. Importantly for GM, retail sales volume of its four core brands – Chevrolet, Buick, GMC and Cadillac were +13% in the month. The large decline in GM’s December fleet sales was partly due to comparisons from last December when fleet sales were materially higher ahead of GM’s planned production shutdown (see related US December Auto Sales: Grim Replay 01-06-09). We highlight that GM’s December 09 fleet mix of 23% is the lowest among its domestic peers with Ford at 35% and Chrysler at ~50%. GM’s December 09 fleet mix is also nine points lower YoY. This relatively lower fleet mix and planned reduction in non-core brand sales weighed heavily on GM’s reported sales figures for the month. However, looking at just the retail performance of the core brands, results are fairly respectable from a transaction price standpoint given the success of new product launches. GM’s average transaction prices are up $3700 compared to last year and that (according to GM) is also higher than the industry. Overall GM crossover retail sales in the month were up 67% led by sales improvement of the Traverse, Equinox, Acadia and the Enclave. GM ended the year with the lowest inventory on record of only 385,000 units and that is not only 56% lower YoY, but also 53,000 units lower sequentially. This low level of inventory translated into about a 57-day supply and that is the second lowest level of inventory on record for GM (based on days supply). Looking at 2010, GM expects industry sales volume to improve from 2009 and be in the 11 mm – 12 mm units range. We highlight that this is slightly lower than Ford’s 2010 volume expectation of 11.5 mm – 12.5 mm. Given GM’s reduced inventory carry as it exits 2009 and expectation of sales improvement in the year ahead, the company still affirmed its 1Q10 NA production guidance of 650,000 units, which is 6% higher sequentially and 75% higher on a YoY basis (see related US Autos Snapshot: December 2009 12-10-09)
Ford: retail sales improve while fleet sales surges
Ford ended the year on a very strong note with December sales increasing +24% on a DSR basis, which was supported by both improvement in retail sales volume (+18%) and a very solid fleet sales month (+74% YoY). We underscore that Ford’s improving image in the marketplace due to its products and also as the only domestic automaker that did not file for bankruptcy has certainly helped it gain retail share now for fourteen of the past fifteen months. For the full year 2009, Ford has also recorded total market share gain of 120 bps to 15.9% and this marks the first annual market share gain for Ford in fourteen years. The same factors that have attracted the retail buyers to Ford are also behind the fleet buyers purchasing decisions as both the commercial and rental fleet buyers now are selectively returning to the marketplace after nearly completely withdrawing themselves earlier in the year. Higher fleet sales in December boosted Ford’s results and that has also been the case over the past few months already (see related US Nov Auto Sales: Stabilizing at Low Levels? 12-0-09, US Oct Auto Sales: Tricked or Treated by YoY Comps 11-03-09, Sept Auto Sales: Clunker Syndrome, Cannibal Effect 10-02-09). Driven by a 74% YoY increase in Ford fleet sales volume in December, Ford’s fleet sales mix was 35% in the month and that is eight points higher YoY and also three points higher from last month. Higher fleet sales at Ford are only a recent trend and Ford’s full year fleet mix of 30% is still nearly two points lower YoY.
Ford ended the month with total inventory carry of 382,00 units and that is not only 13% lower YoY, but also 4,000 units lower sequentially and inventory came in modestly below Ford’s year-end inventory target of ~400,000 units. In the month of December, Ford recorded sales increases in a wide range of products, partially benefitting from fleet sales, but the noteworthy increases were of the Ford Fusion, which recorded its best ever December sales and also set a new full-year sales record. Ford Escape also set a December sales record and its second best sales year. We highlight that the Ford F-Series December sales increased 8% on a DSR basis and even though full-year sales are -20%, the F-Series still managed to gain market share in the full-size pickup product category according to the company. Looking ahead, Ford is cautiously optimistic about an improvement in the full size pickup market and Ford is projecting total vehicles industry sales in 2010 to be in the 11.5-12.5 mm range.
Toyota: wraps up the year strongly
Among the leading automakers, Toyota recorded the second largest percentage sales increase in December of +23% on a DSR basis and this compares to the industry sales increase of 7% for the month. This very strong finish to the year also allowed Toyota to end the full year with a modest YoY share gain of 20 bps to 17.0%. The large increase in sales in December was led by the Toyota Division where sales increased 25% alongside higher sales of the Lexus Division vehicles where sales increased 14%. Although the year end stats will suggest that Toyota fared relatively well in what was a historically brutal year for the auto industry, Toyota did experience ups and downs on a monthly basis in the year. Overall, full year Toyota sales were -20.2%, but that compares favorably to the industry sales decline of 21.2%. Despite the unpleasant market backdrop and a shrinking industry, Toyota was still the best-selling brand in the US and Lexus was the best-selling luxury brand again in 2009. In December, Toyota outperformed in both the car and light truck product categories and the sales increases were led by the flagship models Camry and the Corolla alongside higher sales of the Prius, new Venza, RAV4, Highlander and Sienna among others. We highlight that given the large decline in sales volumes this year and unfavorable direction of the yen, Toyota has been gradually increasing its NA production mix in 2009 to better balance its manufacturing costs. In the month of December, Toyota’s NA-built vehicles accounted for more than two-thirds of all vehicles sold (67%) and that is ten points higher than last year. On a full-year basis, Toyota’s NA-built vehicles accounted for 63% of all sales and that is eight points higher than last year. We underscore that even as Toyota is gradually increasing its domestic production mix, its overall import mix is still higher compared to Honda (16% import mix) and Nissan (29% import mix) (see related Toyota 2Q10: Rising Sun but Too Early For Shades 11-05-09 and Honda : 2Q10 Beats Estimates; Raises Guidance 10-28-09).
Honda: comfortably settles in at #4 spot
Honda’s 19.5% decline in total sales in 2009 was lower than the industry decline allowing the company to still improve its full-year market share performance to 11.1%. This better-than-industry performance combined with Chrysler’s large decline has granted Honda the position of the #4 automaker in 2009 behind Ford. In the month of December, Honda’s +16% sales on a DSR basis outperformed the industry and this large increase was led by the Honda Division where sales increased 19% along with higher sales of the Acura Division (+8%). Overall, total cars moderately unperformed the industry in the month and the year, but that was more than offset by stronger performance on the light truck front. In the month, sales increases were led by the Accord, Civic, CR-V, Odyssey, Pilot and the Acura TSX.
Chrysler: monthly sales lag despite incentives and fleet push
Chrysler’s reported December sales at -10% on a DSR basis and this is despite increased sales and incentive promotion and a heavy fleet mix this month. Although Chrysler does not provide their fleet mix on a monthly basis, GM suggested that Chrysler’s fleet mix this month could be around half its sales. Although a handful of vehicles managed to record YoY sales increases in December, overall only the Dodge brand recorded a 16% improvement in sales on a DSR basis, which was more than offset by lower sales of the Chrysler brand vehicles (-13%), Jeep (-16%) and Ram (-38%). Chrysler Group’s underperformance in December relative to the industry is a story that has continued throughout the year and it is no surprise to see Chrysler yield its #4 automaker spot to Honda in 2009. Chrysler lost over two points of market share this year and ended the year with total light vehicle market share of 8.9%. Chrysler ended the month with total inventory carry of 178,538 units representing a 58-day supply. This level of inventory is 55% lower than last year, but moderately higher than last month’s 176,282 units.
Nissan: working hard to hold on to the #6 spot
Nissan has been strongly challenged this year by Hyundai and Kia who together have gained two points of market share in 2009 to 7.1% and were dangerously close to ousting Nissan who claimed market share of 7.4% in 2009. This can certainly be a 2010 event, but Nissan nearly saved itself from that eventuality in 2009 thanks to the last couple of months of respectable performance. In December 2009, Nissan recorded ~10% sales increase on a DSR basis where Nissan Division sales increased 19% and Infiniti Division sales were 10% higher. In the month, Nissan outperformed in both the car and light truck product categories benefiting from higher sales of the Altima, Sentra, Versa, Maxima and the new Cube. On the light truck front, higher YoY monthly sales were recorded by all light truck offerings except the leading two models Murano and the Rogue. Although the Rogue recorded lower YoY sales in December, it is the only Nissan product in the light truck portfolio that recorded a positive sales variance for the full-year 2009.
Hyundai + Kia: the shining stars of the year
Hyundai and Kia have undoubtedly benefitted the most from the auto sector recession thanks to their product offerings that have a compelling “value appeal” attached to them. Combined with an attractively positioned product portfolio for the current environment and some forceful marketing, Hyundai and Kia have certainly made their presence felt in the marketplace and are now a credible competitive threat to other volume automakers. As noted above, Hyundai and Kia combined have gained two percentage points of market share in 2009 and are dangerously close to displacing Nissan for the #6 automaker spot if their pace of sales gain continues into 2010. In December, Hyundai total vehicle sales increased 31% while Kia sales increased 34% and for the full-year period Hyundai sales were +8% and Kia +10%.
Hitin Anand hanand@creditsights.com
Glenn Reynolds greynolds@creditsights.com
John Poehling, Jr. jpoehling@creditsights.com
Recent US Auto Sales Reports
US Nov Auto Sales: Stabilizing at Low Levels?
01 Dec 2009
US Oct Auto Sales: Tricked or Treated by YoY Comps
03 Nov 2009
Sept Auto Sales: Clunker Syndrome, Cannibal Effect
02 Oct 2009
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