Armada Corp Intelligence: Challenges on the Horizon for Auto Sales?

Auto sales were strong in July, full month reports will be out in about two weeks. But, what was interesting was that incentives were up 8% over the same month in 2013. Bloomberg reported an Edmunds statistic that showed that 13.5% of the new car loans issued in July was at zero percent interest. This was the highest rate of zero percent interest incentives since 2010.

We are on track at this time to sell about 17 million vehicles this year. But, there is some concern that current sales rates are being driven by consumers who want to purchase a new vehicle – not because they “need” or have to have it. There was a statistical analysis done that showed that the rate of disposal of vehicles was not outpacing or nearing the rate of consumption. That would suggest that we aren’t seeing vehicles moved to salvage as quickly as we are adding new vehicles. And the rate of new licensees is not growing as fast as in previous years. So, what analysts don’t know is whether we are seeing an overproduction of vehicles – creating too much supply vs. demand for new vehicles or whether this is very real demand. The increased use of incentives to spur sales might suggest that it is becoming more difficult for auto manufacturers to retain strong growth.

Carrying that notion through, as soon as conditions in the marketplace change, the difference between consumer’s “want” and “need” for a new vehicle will have a more drastic impact. Sales can fall off far more quickly if sentiment changes. And, if Congress eases up on mortgage requirements to try and spur the housing sector, the automotive industry will be the loser in that exchange. Sure, for the broader economy, a more robust housing market is a great sign. But, the automotive sector has been our haven of growth since the Great Recession recovery started.

SMU Note: Dr. Christopher Kuehl, Managing Director of Armada Corporate Intelligence is one of our Keynote Speakers at this year’s Steel Summit Conference in Atlanta on September 3 & 4, 2014. Details are on our website: www.SteelMarketUpdate.com.