Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

United states Automobiles / Thematic (Sector/Industry)

Light Vehicle SAAR in May came in at 17.4m units (+6.1% MoM, +1.2% YoY) which was stronger than consensus expectations.  YTD average SAAR remains below 17.0m units, however, at 16.9m. OEMs engaged in aggressive incentive offers over Memorial Day weekend, which resulted in rising incentives and lower retail inventory.  The following are our initial impressions on May auto demand in the U.S.:<ul>
<li>Based on the first 19 calendar days of the month, JD Powers' estimated retail mix in the industry at 78.7%, suggesting that strong fleet deliveries in the month accounted for at least some portion of the SAAR strength.</li>
<li>Average Incentives/Average Transaction Price (ATP) in the market rose to 10.0% in May based on our observations, which is the first month in 2019 in which Incentives/Transaction Price has risen to double digit percentage range.  </li>
<li>Increasing incentives led to industry-wide de-stocking, but light truck days inventory still remains at elevated levels in our view.</li>
<li>Rising ATP continues to be more reflective of industry mix shift, with declining sales of smaller cars.  We do not see the current rise in ATP as a reflection of strong industry fundamentals and OEM pricing power in the market.</li>
<li>In market share terms, Hyundai-Kia (continued mix shift to light trucks with the Hyundai Kona and the Kia Telluride), Subaru (strong sales of the Ascent) and Mitsubishi (strong sales of the Eclipse Cross) have been share gainers with YoY unit sales gains amongst Asian brands YTD, while D3 and J3 have been witnessing YoY declines. </li>
</ul>Based on our observations, much of the rise in SAAR could be attributed to the strong fleet deliveries and aggressive incentives offered over the Memorial Day weekend.  While MoM SAAR volatility this year has made short term forecasting difficult, our outlook for mid-16m unit SAAR in 2019 remains unchanged.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/542/original/Screen%20Shot%202019-06-03%20at%208.24.23%20PM.png?1559618683" class="editor-image img-responsive" data-smartkarma-image-id="89542"></figure><div class="content-caption">Source: Autodata</div>

Light Vehicle SAAR in May came in at 17.4m units (+6.1% MoM, +1.2% YoY) which was stronger than consensus expectations.  YTD average SAAR remains below 17.0m units, however, at 16.9m. OEMs engaged in aggressive incentive offers over Memorial Day weekend, which resulted in rising incentives and lower retail inventory.  The following are our initial impressions on May auto demand in the U.S.:
Based on the first 19 calendar days of the month, JD Powers' estimated retail mix in the industry at 78.7%, suggesting that strong fleet deliveries in the month accounted for at least some portion of the SAAR strength.
Average Incentives/Average Transaction Price (ATP) in the market rose to 10.0% in May based on our observations, which is the first month in 2019 in which Incentives/Transaction Price has risen to double digit percentage range.  
Increasing incentives led to industry-wide de-stocking, but light truck days inventory still remains at elevated levels in our view.
Rising ATP continues to be more reflective of industry mix shift, with declining sales of smaller cars.  We do not see the current rise in ATP as a reflection of strong industry fundamentals and OEM pricing power in the market.
In market share terms, Hyundai-Kia (continued mix shift to light trucks with the Hyundai Kona and the Kia Telluride), Subaru (strong sales of the Ascent) and Mitsubishi (strong sales of the Eclipse Cross) have been share gainers with YoY unit sales gains amongst Asian brands YTD, while D3 and J3 have been witnessing YoY declines. 
Based on our observations, much of the rise in SAAR could be attributed to the strong fleet deliveries and aggressive incentives offered over the Memorial Day weekend.  While MoM SAAR volatility this year has made short term forecasting difficult, our outlook for mid-16m unit SAAR in 2019 remains unchanged.Source: Autodata

May U.S. Auto Demand:  17.4m Unit SAAR Reflects Rising Incentives over Memorial Day Weekend