Just to Clarify

Another January Sales Update

The sales figures coming in this week show that weekly sales forecasting can be a hazardous thing. 

Last week I reported that sales were surprisingly high—for a Januar—with an overal SAAR of 12.8m.  This week, the data coming in still shows January coming in above December’s pace, but the lift will be more modest. 

The retail pace has slowed slightly to around 702,000 units, or a retail SAAR of a bit fewer than 10.6m.  Assuming 17% fleet, we get to overall sales of 846,000 sales, or an overall SAAR of 12.72m. 

In terms of winners and losers, BMW is off around 18% from their unusually strong December pace.  Honda is off around 7% and Hyundai and KIA are up (again!) around 14%

A couple thoughts:  As I noticed last week, these numbers are unusual.  Typically, January starts strong as the market recovers from the December sales events.  This year, it looks like the pace is slowing as the month progresses.  (I would expect the opposite.)  This raises a big question mark about how the month will end.  Will the pace continue to slow, or we will see the pace turn around?

The one very big question mark is fleet.  Fleet is a lousy measure of consumer confidence (obviously), but it can contribute to automaker profitability, so is important to monitor.

Last January, fleet made up fully 25% of overall sales.  This year, we are assuming only 17%.  (In line with recent months.)  Last January saw unusual levels for restocking and possibly local governments ordering new fleet vehicles with stimulus dollars.  So I don’t think 25% is something we will repeat anytime soon.

But 17% seems low, as fleet sales are typically front loaded with a new year.

We will get fleet sales guidance form the OEs next week, and will have better visibility on the likely percentage then.  Right now, I would bet there is room here for additional upside.

So, January is still looking better than December.  But remember, there are still plenty of selling days between now and the end of the month. 

Some Clouds on the Horizon

Last week, Detroit.  Today I am travelling to New York.  This allows me to catch up on my reading and one of my favorite weekly reads is The Economist.

Two things in this week’s issue caught my eye.

The first is that are advocating that Europe’s most indebted nations default.  (Ireland, Portugal and Greece, to start.)   This is a radical idea, but they cite compelling data showing that debt levels are simply not serviceable and defaulting sooner is better than later.

It struck me how similar sounding the logic was to the situation with the Detroit car companies two years ago.  Even the idea of a “managed” default sounds like a “managed” bankruptcy. 

‘Course the difference is that we had a Roman style dictator in the form of Steve Rattner to help the GM/Chrysler bankruptcies along.  (The Romans didn’t view the term “dictator” as a pejorative.)  Nothing like this seems politically in the cards for Europe. 

The other piece was a look at commodity price inflation.  The point was that commodity prices usually peak when demand is highest—at the high point of the economic cycle.  It is unusual to seem prices rising this soon in a recovery.

Some blame can be placed on speculators who are anticipating increased demand as the global economy continues to recover and investors seek returns.  But apparently this is not a primary driver of higher prices. 

A stronger argument can be made that this is part of a longer-term cycle triggered by growth in emerging markets.  This growth is putting pressure on existing supply, pushing up prices.  This also suggests that prices that can only go higher as economies recover.

I mention both these pieces as they are connected. 

Last week I posted about encouraging January vehicle sales.  But these two articles point out the other side.  There are still huge risks out there.   A default could send interest rates sky high.  Raising commodity prices will pull money from consumers that could be spent elsewhere. 

Either (or worse still) both could easily derail the tentative recovery that is already being held back by housing and unemployment. 

So is the glass half empty or half full?

A January Surprise

January is a tricky month for forecasting.

First off, most years there are year-end sales events in December.  These events wrap up New Years Day weekend.  This year, this was January 3^rd.  Not surprisingly, sales over this weekend get reported in December to take advantage of the special offers. 

The result is that this January effectively consists of 28 days instead of 31—at least from a sales perspective.

Because of the year-end sales events, the first couple weeks in January tend to be slow—after all, if you wanted a new vehicle, why wouldn’t you buy in December when it was on sale?

Much of this is baked into the SAAR algorithm, which assumes that January will be the slowest month of the year in terms of unit sales.

So the data that is starting to come in is at least a little surprising.  Shopping activity on the web site is “strong.”  (I put this in quotes, because this is a relative thing.  Strong as compared to activity over the past couple years.) 

Add to this the sales data we are seeing—which also looks robust—at least for January.  And remember, this is before the 15^th, when sales typically start to pick up.

So here are our best guesses for January:

December momentum is continuing.  The data points to retail sales of 706k, or a SAAR of 10.62m. (Compared to 949k or 10.36m SAAR in December).   If we assume the same fleet mix (17%) as December, we would see total sales of 851k, or 12.8m SAAR.  (Up from 12.5m)

Retail-share-wise, compared to the same period last month, BMW is down about 10%, while Hyundai and Kia are up about 8%.  Everyone else is relatively stable.

Note how the overall sales are much lower, but the SAAR is actually higher than December.  As I said, SAAR assumes a slow January.

What will be really interesting is the next 15 days.  Will we see a typical sales uptick?  Will this be enough to push SAAR over 13m overall?

Don’t know.  What is clear is that consumers are out shopping and buying.  Not a bad way to start the year.

December Sales

I am back from the break--just in time to look at the December sales results reported yesterday.

It seems like every manufacturer had sales events running through January 3rd.  (Although the deals on offer might not have been as sweet as some customers were hoping for...)

Results came in just a bit higher than expected with a SAAR of just under 12.5m.  Considering the sales event hype, this is right in line with what we saw in October and November.   Seems like the recovery is taking another breather.

Two things did jump out from the December results:

1/  GM, Ford and Chrysler showed year over year cuts in incentives.  Good for profits, but bad for consumers looking for deals.  Despite what amounts to price bumps, all three reported share gains.

2/  Along with new products, a contributor to these share gains is a continuation of the swing to full size trucks and SUVs.  (Also good for profits.)

An obvious questions, now that gas prices are on the march again, is how much longer can this continue before full-size vehicle sales start to slide?

Although it is true that consumers become less sensitive to fuel price swings as the fuel efficiency of their vehicle improves, I would say we have to be getting close.

Here our monthly sales video.  (Apologies for my voice—I am still getting over a cold…)

 

December Sales Forecast

I am on vacation this week--thankfully away from all the bad weather. Checking emails, I noticed our official forecast for December is being released.

Overall sales should end up around 1.127m for a SAAR of 12.34m. This is compared to 873k or 12.2m SAAR last month. We are assuming fleet sales of 19% which is the same as last month.

Retail sales should be 912k for a retail SAAR of 10.1m. Unit sales are up from November's level of 710k, but most of this assumed. (November's retail SAAR was 10.0)

Some observations:

-This should put the sales total for the year at 11.5m.
-December's pacing has dropped slightly. I would have liked to see a SAAR of over 12.5--considering all the special events that are being promoted.
-The last three months have been in the same range. This suggest the recovery has reached a plateau.

There is a final note. Christmas Day is on a Saturday, meaning most dealerships will be closed. Not sure if this will slow down the sales space or not.

In any event, I hope you enjoy your Holidays.

A Quick Look at December Sales

December is a key month for sales as it sets up a run rate for next year. It is very early, so don't read too much into these numbers, but it looks like things have gotten off to a good start.

Looking at historical patterns for the month and the current sale pace, retail sales should end up around 916k, or 10.1m retail SAAR (compared to 9.9m last month). Assuming about the same fleet mix as last month (19%), you get to a total of around about 1.13m total sales, or 12.48m SAAR (compared to 12.2m in Nov).

So the slow recovery is continuing.

Retail-share-wise, the luxury makes are doing very well. Compared to the same period of last month, BMW and Mercedes have increased more than 25%; GM increased about 10% (from 17.3% to around 19%), while Toyota is down about 8% (from around 16% to 14.7%). Others are fairly steady.

As I said, this is from only 1 weeks' worth of data.  Still, an increase would be a nice way to wrap up the year.

November Sales Video

Here's a video we shot yesterday for AutoObserver in which I discuss November sales with Karl, Jessica and Michelle.

 

Parsing November Sales

The big news in November seems to be that there wasn't much news.  Sales came in right in line with expectations at a pace of 12.2 million units (SAAR).

Looking a bit deeper, though, there are a few storylines worth mentioning:

The first is that automaker press releases are full of comps with last year.  These look good but are really meaningless.  Remember, last year we were still shaking off the effects of the Cash 4 Clunkers hangover.

The second is that the algorithm used to calculate SAAR bakes in a reduction in sales from October to November.  In other words, the SAARs for October and November could both be 12.2M units, but sales in November would actually have dropped by around 10%.  Everyone quotes SAAR, but I still wonder how reliable it is as an indicator of economic direction.

Still, in most respects, November does seem like a repeat of October.  Incentives levels were about the same, which is to say still down compared with past levels.  Full size trucks and SUVs are still doing well.

The one big difference is November’s Thanksgiving Weekend--which is usually a good sales period.  It seems to have played out as expected.  Taking into account the consumer preference for buying during sales events, one could position November as a step back from October.  (The SAAR should have beaten October's.)  Makes December an interesting month…

There are a few data points not being reported that I thought I would share.  I noticed that traffic to Edmunds was up in November, compared with October.  If it followed unit sales, it should have dropped.  What is interesting is what these shoppers looked at.  Here’s a sample:

Shopping Patterns, November vs. October

• Advice/Buying Guides   +22%
• Incentives                           +7%
• Consideration                     -6%
• Purchase Intent                -14%

The distinction here is between early shopping activities, which are up, and late shopping activities, which are down.  Seems like people are testing the waters, but still holding back.  One hypothesis:  Incentives are down.  Consumers are looking for deals and not finding them—at least at the level they expect.  So they hold off. 

How this plays out in December—with its historical emphasis on year-end deals—will be interesting.

November Sales Update

Are vehicle sales continuing to trend up?  We've been dissecting the November sales data for answers.  Unfortunately the answers are equivocal.  The tempo is up for a few days, then down for a few days. 

Of course, the weekend that matters is coming up.  Assuming Thanksgiving Weekend Sales have roughly the typical lift, unit sales in November will be less than October.  But that is assumed in SAAR.  We see fleet up one point, with retail down a bit.

Overall, we see SAAR for November coming in right 12.2--the same as October.

 

Are Vehicle Sales Slowing Post Election?

There seems to be a bit of a post-election swoon hitting the stock market.  Perhaps investors' enthusiasm for a more business-friendly Congress has been tempered with the reality that we still have real problems to deal with.

In any event, I was interested to see if this was reflected in vehicle sales for the first week of November.  (Vehicle sales correlate more closely with the performance of the stock market than you might think.)

The good news is that vehicle sales are off slightly, but at a pace consistent with a monthly SAAR of 12.2 M  (Actual sales in November are weighted towards the Thanksgiving weekend and are assumed to be slightly lower than October.)

A 12.2 M SAAR also assumes slightly higher fleet sales than October, which may not materialize.  So lots of assumptions at this point, but it looks like the anemic recovery continues.

Incidentally, if November and December end the year with a 12.2 M pace, 2010 will record 11.49 M sales.