Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

United states Automobiles / Thematic (Sector/Industry)

<p>June sales decline (-5.0% MoM, -2.8% YoY) was more pronounced than June's 17.28m unit SAAR (-0.7% MoM, -0.2% YoY) largely due to this year's June having one less selling day than June 2018.  As a result June's selling rate adjusted higher despite a noticeable drop in actual sales volumes.  Here are our initial observations for June:</p><ul>
<li>Based on JD Powers' observations on the first 19 selling days in June, retail component of SAAR is estimated at 79.2%, which would imply that retail SAAR came in at 13.7m units in June, down from 13.8m in May and 13.8m units in June, 2018.  Thus far in the year SAAR has been sustained largely by fleet sales strength.  The risk remains in 2H, when fleet selling rate typically weakens.</li>
<li>Average Incentives/Average Transaction Price (ATP) reached 10.3% in June.  We are no longer convinced that the pricing discipline, which OEMs have been highlighting, are still in play.  Cash back incentives were back in play in June especially on D3's light truck offerings.</li>
<li>Days inventory has been coming down, but this should be seen against the backdrop of rising incentives in our view.  </li>
<li>Industry mix continued to shift away from smaller vehicles.  According to our observations, it is not OEM pricing power that is behind the rising transaction price but weaker credit buyers not buying and longer credit terms designed to lure buyers into larger segments on affordable monthly payment schemes.</li>
</ul><p>In short there were no real surprises in June's numbers.  While we continue to expect 2H average SAAR to weaken, the demand deterioration is not likely to be a crash from the current vantage point.<br><br></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/092/130/original/Screen%20Shot%202019-07-03%20at%203.29.42%20PM.png?1562193012" class="editor-image img-responsive" data-smartkarma-image-id="92130"></figure><div class="content-caption">Source: Autodata</div>

June sales decline (-5.0% MoM, -2.8% YoY) was more pronounced than June's 17.28m unit SAAR (-0.7% MoM, -0.2% YoY) largely due to this year's June having one less selling day than June 2018.  As a result June's selling rate adjusted higher despite a noticeable drop in actual sales volumes.  Here are our initial observations for June:
Based on JD Powers' observations on the first 19 selling days in June, retail component of SAAR is estimated at 79.2%, which would imply that retail SAAR came in at 13.7m units in June, down from 13.8m in May and 13.8m units in June, 2018.  Thus far in the year SAAR has been sustained largely by fleet sales strength.  The risk remains in 2H, when fleet selling rate typically weakens.
Average Incentives/Average Transaction Price (ATP) reached 10.3% in June.  We are no longer convinced that the pricing discipline, which OEMs have been highlighting, are still in play.  Cash back incentives were back in play in June especially on D3's light truck offerings.
Days inventory has been coming down, but this should be seen against the backdrop of rising incentives in our view.  
Industry mix continued to shift away from smaller vehicles.  According to our observations, it is not OEM pricing power that is behind the rising transaction price but weaker credit buyers not buying and longer credit terms designed to lure buyers into larger segments on affordable monthly payment schemes.
In short there were no real surprises in June's numbers.  While we continue to expect 2H average SAAR to weaken, the demand deterioration is not likely to be a crash from the current vantage point.  Source: Autodata

June U.S. Auto Demand:  SAAR Stability Based on One Less Selling Day