June Car Sales: Detroit Ready To Score on Rebound

 Two auto industry sales forecasts disagree on the numbers, but TrueCar.com and J.D. Power and Associates agree that June should turn out to be a dynamic month for the automotive industry, domestic (Detroit) and foreign.

That is great news not just for the car companies but for all of the businesses in that supply chain. After all, if 12 million to 13 million cars are sold, somebody has to make 12 to 13 million steering wheels, gear shift levers, 48 to 52 million tires, 48 to 52 million hub caps…and on and on. And someone has to feed, clothe, and shelter the people who are making those hub caps, tires, gear shift levers, steering wheels, cars and trucks. And don’t even get me started on people making toys for them and their kids.

Manufacturing is back.  Manufacturing is being reinvented.  This is one more chapter for Last Chance Mile: The Reinvention of Manufacturing, due out this summer.

June's new-vehicle retail sales rate is approaching a 12 million-unit pace, the strongest level since February, according to a monthly sales forecast developed by J.D. Power and Associates' Power Information Network® (PIN) and LMC Automotive.

Retail Light-Vehicle Sales

June new-vehicle retail sales are projected to come in at 994,800 units, which represent a seasonally adjusted annualized rate (SAAR) of 11.9 million units. Volume is expected to increase 15 percent, compared with June 2011, after adjusting for one additional selling day this month. Retail transactions are the most accurate measurement of true underlying consumer demand for new vehicles.

"We're seeing healthy retail sales growth as we head into the summer selling season and as automakers change over to the 2013 model-year vehicles," said John Humphrey, senior vice president of global automotive operations at J.D. Power and Associates. "Many major manufacturers are posting year-over-year retail sales gains this month, while maintaining strong new-vehicle prices. Average incentive levels, while up 9 percent versus a year ago, are down 5 percent from May. All indicators point toward an industry that continues to get healthy."

Total Light-Vehicle Sales

Total light-vehicle sales in June are expected to come in at 1,265,900 units, which is a 16 percent increase from June 2011. Fleet volume as a percentage of total light-vehicle volume is expected to reach 21 percent in June, after falling below 20 percent in May.

J.D. Power and LMC Automotive U.S. Sales and SAAR Comparisons

	June 2012(1)	May 2012	June 2011
New-Vehicle Retail Sales	994,800 units (15% higher than June 2011)(2)	1,070,816 units	834,556 units
Total Vehicle Sales	1,265,900 units (16% higher than June 2011)	1,332,054 units	1,050,831 units
Retail SAAR	11.9 million units	11.4 million units	9.5 million units
Total SAAR	13.9 million units	13.7 million units	11.5 million units

(1) Figures cited for June 2012 are forecasted based on the first 17 selling days of the month.

(2) The percentage change is adjusted based on the number of selling days in the month (27 days in June 2012 vs. 26 days in June 2011).

Gas prices in the United States have fallen steadily since April, which has changed demand for hybrid and electric vehicles. As gas prices increased from $3.33 per gallon in November 2011 to $3.84 per gallon in April 2012, the combined share of retail sales of hybrid and electric vehicle sales increased from 1.7 percent to 4.6 percent during the same period. However, as gas prices have dropped since April, so has the market share for hybrid and electric vehicles, which has been trending downward during the past two months and is now at 3.4 percent.

"The hybrid and electric vehicle market closely follows gas prices, which demonstrates that while there is consumer interest in hybrid and electric vehicles, demand is heavily influenced by the economic environment, rather than pure interest in the technology," said Humphrey. "Until we see alternative powertrain growth without rising gas prices, we won't see the market share growth that many automakers are hoping for."

LMC Automotive expects a hybrid and electric vehicle sales to account for 3.2 percent of total light-vehicle in 2012.

Sales Outlook

After two months of upward revisions to the 2012 forecast, LMC Automotive is maintaining its light-vehicle sales forecast for 2012. Total light-vehicle sales are forecasted at 14.5 million units with retail sales at 11.6 million units.

"Despite a rising level of uncertainty with the economic recovery, consumers remain resilient in their willingness to purchase new vehicles," said Jeff Schuster, senior vice president of forecasting at LMC Automotive. "Concerns regarding the macro-economic environment and another potential summer slowdown have increased, but we expect the sales pace to remain strong and stable throughout the second half of the year."

North American Production

Throughout May 2012, North American light-vehicle production is well ahead of the increase in U.S. sales, with volume up nearly 23 percent, compared with the same period in 2011. More than 1.2 million additional vehicles have been built in the first five months of 2012, compared with the same period in 2011, as inventory rebuilding has driven the volume increase. U.S. manufacturing growth continues to lead the overall North America region with a 26 percent year-to-date increase. Production in Mexico is up 14 percent, and Canadian manufacturing is 19 percent higher.

Vehicle inventory at the beginning of June declined slightly to a 52-days’ supply (compared with a 55-days’ supply in May). Car inventory remains at a below-normal level, with a 43-days’ supply in early June, down from 45 days in early May, as demand for cars has increased due to lower fuel prices. Truck inventory levels are at normal levels with a 61-days’ supply, down from 67-days’ supply in May.

LMC Automotive's production forecast for North American in 2012 stands at 14.9 million units and represents a 14 percent increase from the 13.1 million units built in 2011. LMC Automotive expects 2013 North American production to exceed the 15 million-unit threshold, to 15.3 million units.

"Despite the significant increase in production levels this year, vehicle inventory has remained at a level that is below the typical 60- to 65-day supply," said Schuster. "As we look to the future, volume remains robust, as increases in exports, as well as imported volume resourced to North America, drive higher levels of North American production."

TrueCar.com is forecasting for June 2012  new light vehicle sales in the U.S. (including fleet) is expected to be 1,242,301 units, up 18.1 percent from June 2011 and down 6.9 percent from May 2012 (on an unadjusted basis)

The June 2012 forecast translates into a Seasonally Adjusted Annualized Rate (SAAR) of 13.6 million new car sales, up from 11.5 million in June 2011 and down from 13.8 million in May 2012

Retail sales are up 15.7 percent compared to June 2011 and down 6.9 percent from May 2012

Fleet and rental sales are expected to make up 20.5 percent of total industry sales in June 2012

The industry average incentive spending per unit will be approximately $2,432 in June 2012, which represents an increase of 1.5 percent from June 2011 and decrease of 4.8 percent from May 2012

Used car sales* are estimated to be 4,774,707, up 6.3 percent from June 2011 and up 10.8 percent from May 2012.  The ratio of new to used is estimated to be 1:4 for June 2012

"The remarkable recovery of Toyota and Honda continued in June," said Jesse Toprak, Vice President of Market Intelligence for TrueCar.com. "Uncertainty in the financial markets brought selling rates below 14 million units for the second month in a row. Despite the relative slowdown in the last few weeks, the first half sales results this year indicate a relatively healthy car industry; perhaps the brightest spot in an otherwise struggling U.S. economy. We expect second half of 2012 to average around 14.5 million units, which will take us to over 15 million new cars sold in 2013.

"Average incentive spending for all automakers will hit its lowest levels this month since last year in the months following the natural disasters in Japan and prior to that since January 2007," said Kristen Andersson, Senior Analyst at TrueCar.com. "Toyota will post strong retail sales this month while decreasing incentive spending as consumers continue to snap up the popular Camry, Corolla, and Prius."

TrueCar.com also projects sales down to the brand level, which can be viewed in its entirety at the Truth Blog on TrueCar.com.  Brand level incentive spending forecasts are available upon request.

TrueCar.com bases its forecast on actual transaction data.  The transaction data based forecast is refined by other current and historical factors that impact vehicle sales, including:  sales, inventory, incentives, fuel prices, and macro-economic data (major stock market indexes, consumer confidence, new home starts, and CPI).  TrueCar.com does not adjust for selling days in year-over-year percentage change calculations.

*Used car sales figures include sales from franchise dealerships, independent dealerships and private party sales