Light vehicle sales in the U.S. saw a robust growth of 27% to a seasonally adjusted annual rate (SAAR) of 13.4 million units in January, primarily triggered by higher consumer incentives offered by most of the leading automakers. SAAR during the month was the fastest since the U.S. government’s “Cash for Clunkers” program in August 2009, when it ticked at 14.2 million units.
Surprisingly enough, shooting oil prices due to a turbulent situation in the Middle East and higher gasoline prices couldn’t shatter the auto sales growth during the month. Oil prices reached $100 per barrel and average gas prices touched $3.38 per gallon, up at least a dollar from the average price in 2010.
Mike Maroone, President and Chief Operating Officer of the country’s largest dealership chain, AutoNation Inc. (AN) expressed his concern stating that gasoline prices may reach the “freak-out point” at $4.25 to $4.50 per gallon soon.
Do consumer incentives play such an eminent role that it can help the autos protect from any malady? If so, there is a possibility that automakers will start engaging in discount war, neglecting the other key fundamentals driving the auto sales. However, incentives cannot bring in the state of bliss as seen in the post-Clunkers scenario. Before dwelling on the issue let’s have a closer look on the automakers’ sales numbers.
U.S. Automakers
Sales (including fleet) at General Motors Company (GM) surged 46% to 207,028 vehicles as car sales jumped 76%, truck sales spiked 74% and crossover sales shot up 59%. The company’s retail sales clocked a growth of 70% seeing the peak of its history. However, fleet sales were sluggish, increasing marginally by 2% as sales to car-rental companies ebbed 5% and sales to commercial customers went up 19%.
Sales of GM’s four core brands, Chevrolet, Buick, GMC and Cadillac, rose 43%, 73%, 59% and 83%, respectively. Despite inflating gas prices, the automaker saw higher sales of some of its pickups. Sales of its full-size pickup trucks soared 65% driven by a 60% rise in sales of Chevrolet Silverado to 31,728 units, thereby becoming the top selling model of the month.
Sales at Ford Motor Co. (F), comprising the namesake, Lincoln and Mercury brands, rose 14% to 156,626 units while its retail sales grew 23% during the month under study. Impressive sales growth of new Fiesta, Fusion (40%), Edge (17%), F-Series (14%) and revamped Explorer (139%) contributed to the overall sales gain.
Sales at Chrysler (including the namesake, Jeep, Dodge and Ram brands) appreciated 13% to 95,102 vehicles. The automaker’s sales growth was led by impressive sales of new Jeep Grand Cherokee (31%) and Ram pickup trucks (82%).
Automakers in Japan
Despite suffering from safety issues and making a series of vehicle recalls, sales at Toyota Motor Corp. (TM) escalated 41.8% to 141,846 units. Sales of the Toyota brand escalated 48.5% while that of Lexus were almost flat compared with the year-ago level.
Strong sales of Camry (64%) and Corolla (52%) as well as favorable comparison with last year (when it held back sales of some models due to recall) contributed to the company’s overall sales growth. Toyota also acknowledged some positive impact from its marketing campaign, “Number One for a Reason.”
However, sales at Honda Motor Co. (HMC) zoomed 22% to 98,059 vehicles, driven by telling sales growth of CR-V sport utility vehicle (61%), Accord (2%), Civic (16%) and Fit subcompact (44%). Meanwhile, sales at Nissan Motor Co. (NSANY) increased 32% to 92,370 vehicles on strong sales of Rogue crossover (86%).
Other Automakers
Sales at Daimler AG (DDAIF), including Mercedes-Benz (cars, light trucks and Sprinter) and smart vehicles, inched up 5.3% to 16,660 vehicles. Sales of Mercedes-Benz increased 5.1% to 16,176 vehicles on higher volumes of C-Class and E-Class, while sales of smart USA gained 10% to 484 units.
Sales at Hyundai Motor Co. (HYMLF) went up 28% to 43,533 vehicles driven by higher sales of revamped Sonata sedan (103%) and the newly redesigned Elantra (74%). Meanwhile, sales at Kia Motors, Hyundai’s sister company, zoomed 36% led by galloping sales of Sportage crossovers and Optima sedans.
Are Incentives Really Fruitful?
Incentives can undoubtedly boost the auto sales but it cannot expedite its speed to the finishing line. Considering the whole industry, incentives have, in fact, reduced by 4.6% to $2,578 per vehicle, according to Autodata Corp.
The automakers trimming the incentive spending include Ford (9.7% year-over-year to $2,542 per vehicle) and Chrysler (14% to $3,052 per vehicle). Nevertheless, some automakers did gain by raising their spending on market promotion. They include GM (12% to $3,732 per vehicle), Toyota (11% to $2,003 per vehicle) and Honda (8.9% to $1,979 per vehicle).
However, we wonder whether increase in incentive spending is sufficient to lift the auto sales or not as Don Johnson, GM’s Vice President of U.S. sales, has asserted that a “$400 increase doesn’t drive these kinds of share gains and sales gains.”
Johnson also stated that incentive spending would be lowered over time. His company spending in February was lower than $4,750 per vehicle – the highest level in 10 years – recorded in March 2009. In January this year, the spending was $3,849 per vehicle.
Thus, other factors such as economic recovery, better loan availability, low interest rates and increasing consumer confidence are crucial for a more sustainable auto sales growth, with incentives invigorating the entire process. However, rising gas prices could be detrimental for the industry sales.
Separate studies by The Conference Board, Thomson Reuters and University of Michigan revealed that confidence among U.S. consumers rose to the highest level in February in the last 3 years. The Conference Board reported that the percentage of consumers planning to buy a new vehicle within 6 months has increased to 4.6% from 3.1% at the end of last year. Good news isn’t it!
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