Autosignal | Wednesday, November 11, 2009
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Amid October's So-So Sales, Signs of Health October's lackluster sales results contained surprising signs of a fundamentally healthier market. Transaction prices rose dramatically, incentives dropped and too-tight inventories became more comfortable. Most analysts are projecting continued improvement from the dreadful sales of the past 13 months. Average transaction prices soared $2,200 from a year ago, according to J.D. Power and Associates. "Public demand is pulling higher content," says Ken Czubay, Ford Motor Co. sales boss. "We're not pushing it. It's clearly a pull market for our dealers." Ford's unit sales rose 3 percent in October, and Czubay says buyers are taking more equipment, which is boosting transaction prices. Meanwhile, incentive levels declined in October, and inventory shortages eased enough so as not to hinder future sales. October's annual selling rate of 11.2 million was the best this year, except for the skewed cash-for-clunkers months. "We're making progress," says Susan Docherty, General Motors' new vice president of U.S. sales. GM's October sales rose 5 percent. Sales of just over 838,000 units last month were about the same as October 2008 sales. But October 2008 was down 32 percent from October 2007 and was the first October in more than 20 years in which sales failed to top 1 million. High-priced models The average transaction price jumped to $28,867 last month, from $26,667 a year earlier, says Jeff Schuster, executive director of forecasting for J.D. Power. "I don't recall seeing an increase this drastic before," he says. "It's a very positive signal. The industry is much better positioned than it was a year ago." Schuster says "everything aligned" in October: more sales of high-priced models; fewer holdover units requiring big incentives; and more optimistic customers than last autumn, when high fuel prices and economic turmoil slammed the market. "Last year customers were buying cheap, but those fears have eased a lot," he says. "And clunkers cleared out all the old models." Last October, holdover 2008 models accounted for half of sales, driving transaction prices down $1,607 from October 2007. This year, 2009s accounted for only 40 percent of October sales, Schuster says. "The industry was light on inventory to start with, and clunkers created an excessive shortage," he says. "So manufacturers replenished their stocks with 2010s." Jeremy Anwyl, CEO of Edmunds.com., says a newer model mix and redesigns such as the Ford Taurus, Buick LaCrosse and Chevrolet Traverse helped manufacturers command higher prices. "Nothing enhances pricing power more than a hot new model," he says. Ford Motor Co. says its transaction prices in October rose $2,700 from a year earlier. Behind much of that improvement: 2010 models accounted for 80 percent of volume, Czubay says. But Ford customers also bought a richer mix of features than expected, including Sync electronics, EcoBoost engines and hybrids. Supplies creep up By Nov. 1, U.S. dealer stocks recovered to a more normal 63-day supply, up from 53 days on Oct. 1. The cash-for-clunkers sales surge in August created a product shortage that depressed September sales. The 1.88 million unsold units on hand is low by historical standards but in line with current low sales volume. Ford's inventory on Nov. 1 was 365,200 units. Ford expects that to increase to 400,000 by December. "That's lower than a year earlier, but it's not so low as to hinder dealer sales like a month ago," says George Pipas, Ford's chief sales analyst. Ford and Toyota boosted production earlier in the third quarter than rivals. They had the highest proportion of 2010 models in October sales, Edmunds data show: 88 percent for the Toyota brand and 74 percent for the Ford brand. Pipas says Ford's Nov. 1 stocks are 90 percent 2010s. "We normally don't get to that level before January, so we're way ahead of the game," he says. Incentive spending declined in October, largely because of an unusually high proportion of 2010 models in the mix, Edmunds.com says. The October industry average of $2,468 per vehicle was down $329 from September and down $209 from October 2008. Anwyl says automakers may rue a lack of 2009 models later. "What happens in a couple months when they don't have any '09s and nobody's buying on the value side?" he says. "There might be a pause in the sales recovery." But most analysts see a sign of growing demand in October's seasonally adjusted annualized sales rate of 11.2 million units, up from September's post-clunker 9.5 million. "We should see a fairly steady increase in demand," says Efraim Levy, equity analyst at Standard & Poor's. "How fast, no one knows, but the trend is there." Schuster adds: "We're through the worst, and we're beginning the slow trek to recovery." (Source: Automotive News, 11/09/09) Click here to add your comment about the article. Click here to email to client
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