It's official, September's U.S. light vehicle sales are going to be Terrible...but not for the reason that you think
After being cautiously optimistic at in a couple of posts over the past two weeks I decided to let my fingers do the walking and run some channel checks on how auto sales are actually going in September. Doing so too early in the month is usually fairly counterproductive because sales in the auto industry are very back-weighted towards the end of the month for a number of reasons, such as dealers hold off on reporting sales to manufacturers in the hopes that incentive monies will increase, consumers have been trained to wait until the end of the month to get the best deal, etc..., but we're getting close to late enough to get a reasonable assessment of how things are going.
So, where do we stand? I can sum up September auto sales thus far in two words...They Suck. This is not tremendously surprising. Any time in the past that a major, successful incentive program has been run in the U.S. there has been a serious hangover effect in the months immediately following the conclusion of the program. Take a look at how sales collapsed after GM ended the 0% financing offer that it rolled out after September 11th or when the Employee Pricing for Everyone that was introduced several years later ended:
Initially I was hopeful that the sales decline would be less dramatic this time because from everything that I have been hearing, demand has started to improve on its own, even without the government's Cash for Clunkers program. The problem is that dealers don't have any cars to sell. The small vehicles that people who traded in their clunkers on are very high volume models that account for a huge percentage of industry volume. Take a look at how the sales of these small models exploded during the C for C program:
Toyota's Scion division:
June 2009: 4,262 units
August 2009: 10,727
June 2009: 5,473
August 2009: 18,580
June 2009: 5,585
August 2009: 13,593
June 2009: 2,217
August 2009: 12,733
You get the idea. Normally there is a reason that a manufacturer runs a huge, expensive, and in turn successful incentive program in the auto industry...their inventory level is too high and dealers are swimming in cars. Manufacturers didn't initiate the Cash for Clunkers program though...Uncle Sam did. Automakers had slashed production dramatically to levels that I have never seen and in turn they were in the process of drastically their excess inventory heading into the C for C program.
As a result, when demand spiked dealers had their lots picked clean. I'll have to do some digging to find out what the official inventory numbers are for the industry, but they have fallen dramatically. Dealers don't have enough cars to sell, particularly high volume models. So any pull-forward effect that the Cash for Clunkers program would have normally had will be magnified tremendously by the lack of inventory out there.
So, enough explanation let's talk numbers. Here are a few industry-wide sales numbers for everyone to use as a point of reference:
June 2009 (pre Cash for Clunkers: 850,000
September 2008 (year-over-year comparison): 960,000
August 2009 (last month): 1,260,000
Again, I'm hearing that sales have absolutely tanked in September because there are no cars out there. My initial educated guess (and that's all that estimates are...particularly this early in the month) is that we'll be lucky to hit 700,000 units in September and that it is very possible that sales will come in at around 650,000. I will be able to refine this estimate as we get closer to the end of the month and more accurate info is available.
Hopefully continued improvement in demand for things that didn't have their inventory sucked dry by Clunkers, such as larger trucks and luxury brands will help absorb some of blow to sales by the lack of availability of a number of high volume vehicles, particularly since a number of manufacturers have rolled out aggressive new incentives programs as the month has progresses. Time will tell. In the meantime, count on a lousy auto sales month in September with demand recovering towards the end of the year as the pull-forward effect from C for C wears off, as inventory levels recover, and as manufacturers introduce even more aggressive incentives for their big year-end sales push.
Rather than looking at the total industry number in September, focus on the sales results of brands or models that are not being as affected by this inventory shortage, such as BMWs or certain trucks.