North American Light-Vehicle Production Soars in August, But Incentives Are Rising
September 21 2016 - 05:22PM
Dow Jones News
By John D. Stoll
North American light-vehicle production soared last month to an
August record high, potentially boosting the need for generous
sales incentives as inventory on dealer lots balloons to a
multiyear peak and auto makers scramble to set another annual
volume record.
General Motors Co. led the industry with a 21% increase in
output to 372,678 vehicles produced in the region, according to
industry data firm WardsAuto.com. The No. 1 U.S. auto maker by
sales volume has been short on inventory in recent months, which
helped drive its U.S. market share to the lowest level in several
decades.
Wards estimates 1.69 million vehicles were produced in the U.S.,
Mexico and Canada last month. The surge comes even though retail
demand for new light-vehicles is flagging and consumer appetite for
used cars in good shape appears to be strengthening.
Meanwhile, September production is forecast to grow modestly,
according to Wards, with GM continuing to ramp up output. Wards
forecasts a slight increase for full-year production.
GM is now stocked with the largest inventory among major auto
makers except Volkswagen AG, according to Wards, holding 74 days of
supply, a level up sharply from July's 66 days and the 63 days at
the end of August 2015. The broader industry's 61 days of supply at
August 31 marked the second consecutive month that overall stock
levels hit a 12-year high.
Haig Stoddard, Wards' industry analyst, said soft August sales
in part led to the higher inventory levels. Even if the industry
finishes 2016 on a strong note, Mr. Stoddard said, auto makers
won't need to increase output at North American factories, given
the glut of dealer stock available.
The boost in production over the summer months could further
help third-quarter financial performances at GM and Toyota Motor
Corp., among others. Besides GM, several car makers posted output
increases for the summer.
Car companies book revenue and profits on production, not sales
to end users. A glut in the market, however, can come back to bite
the industry because costs for sales promotions eventually need to
be accounted for.
While light-vehicle sales through August were slightly ahead of
2015's record pace, auto makers have been paying more to keep
demand humming.
J.D. Power estimates retail sales, or deliveries to individuals
at dealerships, fell 1.3% to 9.3 million over the first eight
months of the year compared to the same period in 2015. Overall
sales are up 0.6% over that period, buoyed entirely by fleet sales
to rental car companies and government and commercial buyers.
Car buyers received a $3,378 in incentives on a new purchase in
August, according to Autodata Corp., or a 10% discount. Incentive
spending is up 12% compared with the previous year, according to
the firm, driven largely by increases at Ford Motor Co., Fiat
Chrysler Automobiles NV, GM and Toyota.
In a note to investors earlier in September, Morgan Stanley auto
analyst Adam Jonas said higher inventory and spending on discounts
were fueling concern the U.S. auto market has peaked.
But Mr. Jonas also said car companies have plenty of tools to
keep buyers interested. Cheap financing, including subsidized
leases and low-interest loans, has helped keep payments low. "We
would not underestimate the industry's ability to keep the cycle
going," Mr. Jonas said, after auto sales fell short of expectations
in August.
Auto executives, however, must combat the growing supply of
late-model used cars flooding the market as leases expire or
qualified buyers look to update their vehicles.
On Wednesday, used-vehicle retailer CarMax Inc. said same-store
car sales grew 3% in the fiscal second quarter, and selling prices
crept up 2.3%. Revenue growth, however, fell behind expectations
and profit declined during the quarter because of one-time charges
and lower store traffic.
Black Book, which tracks car prices, says used-car values are
beginning to erode compared with a year ago on vehicles made since
the U.S. financial crisis. The decline reflects increased
supply.
New-car pricing is threatened when buyers are paying less to get
used cars in good condition.
Write to John D. Stoll at john.stoll@wsj.com
(END) Dow Jones Newswires
September 21, 2016 17:07 ET (21:07 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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