Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

United states Automobiles / Thematic (Sector/Industry)

<p>August SAAR came in at 16.14m units, down 3.5% sequentially and down 6.3% YoY.  The most obvious topic of discussion from D3 OEMs about August sales focused on the uncertainties surrounding the impact of Hurricane Harvey in the coming months.  Trying to conduct a direct comparisons between the impact of Harvey and Katrina on auto demand can be misleading in the author's opinion, since the nature of the two storms and motorization rates in Houston and New Orleans are two different animals.</p><div class="content-highlight"><p>Having said that, here are some key impressions about August SAAR and expectations in the remainder of 2017:</p></div><ul><li><div class="content-highlight">Based on preliminary estimates from JD Powers, Kelley Bluebook and D3 OEM's retail SAAR in August seems to have remained relatively stable in August, with fluctuations coming mainly from fleet sales.  This should not be a surprise since seasonally, 1H fleet deliveries are stronger than in 2H.</div></li><li><div class="content-highlight">Incentives as a percentage of Average Transaction Price remains stubbornly high at above 10%.  This suggests continuing downward pricing pressures against the backdrop of high inventory volumes and production cuts seen through July.  Incentive hikes, as noted in July, applies to both car and light truck segments.</div></li><li><div class="content-highlight">Houston is the 4th largest auto market in the U.S. with one of the highest motorization rates in the country and a mix bias towards light trucks that is higher than the national average.  A 1-2 month share fluctuation could be anticipated between the D3 with the highest truck mix and Hyundai-Kia with the lowest truck mix, but the author expects the stock market to price in the ensuing pent up demand normalization.</div></li><li><div class="content-highlight">Bigger concern at this point is the degree of SAAR weakness investors should expect in 2018.</div></li></ul>

August SAAR came in at 16.14m units, down 3.5% sequentially and down 6.3% YoY.  The most obvious topic of discussion from D3 OEMs about August sales focused on the uncertainties surrounding the impact of Hurricane Harvey in the coming months.  Trying to conduct a direct comparisons between the impact of Harvey and Katrina on auto demand can be misleading in the author's opinion, since the nature of the two storms and motorization rates in Houston and New Orleans are two different animals.Having said that, here are some key impressions about August SAAR and expectations in the remainder of 2017:Based on preliminary estimates from JD Powers, Kelley Bluebook and D3 OEM's retail SAAR in August seems to have remained relatively stable in August, with fluctuations coming mainly from fleet sales.  This should not be a surprise since seasonally, 1H fleet deliveries are stronger than in 2H.Incentives as a percentage of Average Transaction Price remains stubbornly high at above 10%.  This suggests continuing downward pricing pressures against the backdrop of high inventory volumes and production cuts seen through July.  Incentive hikes, as noted in July, applies to both car and light truck segments.Houston is the 4th largest auto market in the U.S. with one of the highest motorization rates in the country and a mix bias towards light trucks that is higher than the national average.  A 1-2 month share fluctuation could be anticipated between the D3 with the highest truck mix and Hyundai-Kia with the lowest truck mix, but the author expects the stock market to price in the ensuing pent up demand normalization.Bigger concern at this point is the degree of SAAR weakness investors should expect in 2018.

August U.S. Auto Demand: The Harvey Impact May Be Felt in the Months to Come