JD Power Lowers 2017 Auto SAAR As High Discounts “Threaten Industry's Long-Term Health”
After a disappointing March for the auto OEM’s, a hopeful wall street has set it’s sites on a rebound in April with consensus SAAR estimates currently set at 17.25 million, up from 16.53 million in March. Per the chart below, the March 2017 print for auto sales was the lowest in over two years, despite massive incentive spending by the OEMs.
Of course, OEMs didn’t bother to adjust production levels to sinking sales which pushed inventory days to the highest March print since 2009.
But while wall street seems to be in a phase of perpetual optimism, JD Power and LMC Automotive have decided to lower their expectations for 2017 sales and warn that consumer discounts remain high enough to “threaten the industry’s long-term health.” Per Reuters:
U.S. auto sales in April likely fell almost 2 percent from a year earlier, with consumer discounts remaining at levels high enough to threaten the industry’s long-term health, industry consultants J.D. Power and LMC Automotive said on Tuesday.
The consultancies also lowered their full-year 2017 forecast for new vehicle sales to 17.5 million units, from a previous forecast of 17.6 million.
April U.S. new vehicle sales will be about 1.48 million units, a drop of nearly 2 percent from 1.51 million units a year earlier, the consultancies said.
The forecast was based on the first 13 selling days of the month. Automakers are expected to report April U.S. sales results on May 2.
The seasonally adjusted annualized rate for the month will be 17.5 million vehicles, flat versus the same month in 2016.
Of course, as we’ve noted numerous times before (see “Morgan Stanley: Used Car Prices May Crash 50%“), the real story with the auto industry isn’t the sinking SAAR levels but rather the growing level of incentive spending required to keep sales from crashing even further.
“While industry retail sales pace remains high, it is being powered by elevated levels of incentive spending which pose a serious threat to the long-term health of the industry,” said Deirdre Borrego, senior vice president of automotive data and analytics at J.D. Power.
Excessive discounts can help sell new vehicles, but undermine resale prices.
The consultancies said consumer discounts averaged $3,499 per new vehicle sold, the highest ever for the month of April. The previous record was set in April 2009, during the height of the Great Recession.
But, auto investors don’t seem to be all that worried so we’re sure everything will work out just fine when OEM’s release April sales on May 2nd.