August 2016 brought the third month of declining auto sales in the past eight months when compared to the same month in 2015, but let’s keep it in perspective… 2015 was the best year for sales in automotive history. Let’s be honest, after the crash of 2009 when GM and Chrysler went bankrupt, the government came out with cash for clunkers, and the auto industry was in shambles, we saw five years of steady sales increases.
No automaker wants to go backwards, but it is inevitable. You just can’t break records every year. While the U.S. auto industry clings to a year-to-date increase of 0.5% after eight months of sales, I think most in the industry would be good with 2016 ending slightly down from 2015.
The early part of September, automakers threw the kitchen sink at incentives. I saw incentive spending I have not seen in years. While the jury is still out on whether it worked, the trend almost felt like a “hail Mary” to see if more money could buy business.
I am noticing, too, that the auto dealerships are pulling out all the stops. Pricing online and in other mediums are well below dealer’s cost on many of the vehicles I am seeing advertised. The good dealers bite the bullet and sell the cars, the bad ones pull the old bait & switch.
For 2016, I have seen it go from a seller’s market to a buyer’s market. Although stats are not as readily available for used car sales as new car sales stats, I am seeing dealers taking deep losses on new cars to be able to get a really nice trade-in.
All this together signals a very competitive market. If you look back in history, the auto industry is cyclical. There are generally five to six years of growth, followed by five to six years of sales declines. During the down times, pent-up demand grows and the age of the average car on the road gets older and older.
The differences are with this cycle as we look ahead is unprecedented low gas prices, low interest rates, and a robust used car market. Is that enough to sustain sales for the coming few years? Only time will tell.
One big thing that could keep things level is leasing. People who lease usually trade vehicles every two to three years and that can make a big difference in overall sales. On the other side of the equation, those who don’t lease are financing for longer terms, which lengthen the amount of time people keep their vehicles.
If you have resisted getting a new set of wheels, the Labor Day incentives were telling. If September sales are not up from last year, we’ll likely see a shift to lower incentives and lower production of vehicles, which will mean prices will rise for consumers. If sales are up versus 2015, then the big incentives worked and we’ll likely see them through the end of the year.
Photo Copyright: Olivier Le Moal