US Autos: Looking Back on 2018 and Musing on 2019

Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

United states Automobiles / Thematic (Sector/Industry)

February SAAR sequentially weakened to 16.6m units from 16.7m units in January 2019, and declined on YoY basis from 17.0m units in February 2018.  Media reports have attributed bad weather, government shutdown and consumer uncertainty about this year's tax refunds as some key reasons for the drop in SAAR.  While the jury is out, we believe these claims should be tested against March actuals in a month's time.  In the meantime, here are some of our initial observations regarding the February numbers:<ul>
<li>Average YTD incentive spending fell 4.8% YoY, which we believe can at least partially explain the drop in February SAAR.  Anecdotal evidence suggests that the industry has been moving away from zero percent financing in favor of cash deals in a rising interest rate environment.  Overall, there will be fewer new product launches in 2019 compared with 2018 in the industry so it remains to be seen how the incentive spendings go for the remainder of the year.  As for now there may be further needs to de-stock in the coming months.</li>
<li>Days supply rose sharply for light trucks while days supply for cars declined in February.  However, on a 3 month moving average basis days supply for both are rising, with higher light truck days supply.  </li>
<li>Light trucks in the industry mix climbed marginally to 69.4% in February from 68.1% in January but it was still down from December's  71.6%.  While it is too early to tell, we would begin to monitor whether the light truck mix has peaked.</li>
<li>Based on LMC Automotive's observations during the first 14 selling days of February, retail SAAR should have been about 75% of the total, suggesting that retail sales weakened while fleet sales sequentially strengthened in February.  On a YoY basis, fleet sales seems to have been flat while retail sales were down.</li>
<li>On the macro front there were some strong economic data points that could have led to a stronger SAAR: the 4.1% unemployment rate, and real disposable income rising by 2.3% sequentially from January.  However, the sequential improvement in consumer confidence based on the Univ. of Michigan Consumer Sentiment Index (CSI) still showed that sentiment remained at depressed levels from a year ago.   Mixed signals from the housing market, however, could be creating headwinds as we discussed in January (see <a href="https://www.smartkarma.com/insights/us-autos-looking-back-on-2018-and-musing-on-2019" target="_blank" data-smartkarma-citation="insights:27115">US Autos: Looking Back on 2018 and Musing on 2019</a>).  </li>
<li>In terms of brand performance in February, nearly every brand increased sales sequentially but generally lost volumes in YoY terms.  BMW, Hyundai-Kia, JLR, Mitsubishi, Porsche and Subaru managed to gain on YoY basis.  Tesla seems to have had a similar pattern based on third party estimates (Tesla does not release monthly sales figures).  On a cumulative YTD basis FCA, Ford, Honda, Hyundai-Kia, JLR, Mitsubishi, Porsche, Subaru and Tesla (again based on third party estimates) managed to achieve share gains against the backdrop of a 2.4% YoY industry decline.</li>
</ul>Based on our observations of the February figures, we maintain our cautious view on U.S. light vehicle demand in 2019.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/782/original/Screen%20Shot%202019-03-03%20at%208.46.31%20PM.png?1551613614" class="editor-image img-responsive" data-smartkarma-image-id="80782"></figure><div class="content-caption">Source: Autodata</div>

February SAAR sequentially weakened to 16.6m units from 16.7m units in January 2019, and declined on YoY basis from 17.0m units in February 2018.  Media reports have attributed bad weather, government shutdown and consumer uncertainty about this year's tax refunds as some key reasons for the drop in SAAR.  While the jury is out, we believe these claims should be tested against March actuals in a month's time.  In the meantime, here are some of our initial observations regarding the February numbers:
Average YTD incentive spending fell 4.8% YoY, which we believe can at least partially explain the drop in February SAAR.  Anecdotal evidence suggests that the industry has been moving away from zero percent financing in favor of cash deals in a rising interest rate environment.  Overall, there will be fewer new product launches in 2019 compared with 2018 in the industry so it remains to be seen how the incentive spendings go for the remainder of the year.  As for now there may be further needs to de-stock in the coming months.
Days supply rose sharply for light trucks while days supply for cars declined in February.  However, on a 3 month moving average basis days supply for both are rising, with higher light truck days supply.  
Light trucks in the industry mix climbed marginally to 69.4% in February from 68.1% in January but it was still down from December's  71.6%.  While it is too early to tell, we would begin to monitor whether the light truck mix has peaked.
Based on LMC Automotive's observations during the first 14 selling days of February, retail SAAR should have been about 75% of the total, suggesting that retail sales weakened while fleet sales sequentially strengthened in February.  On a YoY basis, fleet sales seems to have been flat while retail sales were down.
On the macro front there were some strong economic data points that could have led to a stronger SAAR: the 4.1% unemployment rate, and real disposable income rising by 2.3% sequentially from January.  However, the sequential improvement in consumer confidence based on the Univ. of Michigan Consumer Sentiment Index (CSI) still showed that sentiment remained at depressed levels from a year ago.   Mixed signals from the housing market, however, could be creating headwinds as we discussed in January (see US Autos: Looking Back on 2018 and Musing on 2019).  
In terms of brand performance in February, nearly every brand increased sales sequentially but generally lost volumes in YoY terms.  BMW, Hyundai-Kia, JLR, Mitsubishi, Porsche and Subaru managed to gain on YoY basis.  Tesla seems to have had a similar pattern based on third party estimates (Tesla does not release monthly sales figures).  On a cumulative YTD basis FCA, Ford, Honda, Hyundai-Kia, JLR, Mitsubishi, Porsche, Subaru and Tesla (again based on third party estimates) managed to achieve share gains against the backdrop of a 2.4% YoY industry decline.
Based on our observations of the February figures, we maintain our cautious view on U.S. light vehicle demand in 2019.Source: Autodata

February U.S. Auto Demand: Lower Incentives for Lower SAAR?