Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

United states Automobiles / Thematic (Sector/Industry)

<p>April light vehicle sales reached 1.35m units, down 18.1% sequentially from 1.65m units in March and down 5% YoY from 1.43m units in April '17.</p><p>April SAAR came in at 17.15mn units, down sequentially from 17.48m units in March, but up from 17.04m units in April 2017.  Average SAAR YTD stands at 17.21m units, down slightly from FY17 demand of 17.23m units.  Here are some of our impressions based on incoming data points:</p><ul><li><div class="content-highlight">April '18 had 24 selling days vs. 26 in April '17, so while unit sales came down selling rates went up.</div></li><li><div class="content-highlight">Retail SAAR looks to have remained relatively stable sequentially, while fleet SAAR in the rental market space seems to have been a major contributor to the sequential SAAR weakness.</div></li><li><div class="content-highlight">Light truck mix again pushed higher than 67% to 67.5%.  Most recent high came in December '17 at 67.7%  YTD light truck mix stands at 66.8%, from 62.7% in the same period last year.</div></li><li><div class="content-highlight">Asian brands overall have been losing share in the key cross-over segment on a cumulative basis, albeit with a mild sequential improvement in April.  Asian market share gainers in this segment were Toyota, Mazda, Mitsubishi and Hyundai brands.  </div></li><li><div class="content-highlight">Hyundai's new Kona has been a key driver behind the brand's crossover segment share gains YtD.  For this year, the key challenge for Korean brands will be to what extent they can raise their presence in the light truck segments while simultaneously gaining share in the car segments.  In this respect, Ford's expected exit from car segments except for the Mustang and the Focus may provide a bit of relief to Asian brands over the next few years with relatively high exposure to sedans, given one less competitor in the space.</div></li><li><div class="content-highlight">Total Inventory has been rising, but so has production.  We would expect to see a production cutback in the coming quarters.</div></li><li><div class="content-highlight">On cumulative basis, Asian brands have been raising incentives on light trucks but cutting back on car incentives, while D3 have been showing a reverse pattern.  However, on a sequential basis it looks like Asian brands may be starting to cut back on both car and light truck incentives.</div></li></ul><p>While housing market conditions, employment and discretionary income patterns have been supporting a higher than long-term trend SAAR level, potential headwinds can come from rate hikes and tighter credit conditions especially in 2H18.  Inflationary pressures can also potentially erode any discretionary income gains that the average worker may have.  It will not be unreasonable to assume that U.S. SAAR this year can dip below 17.0m units depending on macro conditions in 2H.</p><p><strong>In the meantime, continued consumer migration to light trucks continue to favor D3 in the U.S. market in our view.</strong></p>

April light vehicle sales reached 1.35m units, down 18.1% sequentially from 1.65m units in March and down 5% YoY from 1.43m units in April '17.April SAAR came in at 17.15mn units, down sequentially from 17.48m units in March, but up from 17.04m units in April 2017.  Average SAAR YTD stands at 17.21m units, down slightly from FY17 demand of 17.23m units.  Here are some of our impressions based on incoming data points:April '18 had 24 selling days vs. 26 in April '17, so while unit sales came down selling rates went up.Retail SAAR looks to have remained relatively stable sequentially, while fleet SAAR in the rental market space seems to have been a major contributor to the sequential SAAR weakness.Light truck mix again pushed higher than 67% to 67.5%.  Most recent high came in December '17 at 67.7%  YTD light truck mix stands at 66.8%, from 62.7% in the same period last year.Asian brands overall have been losing share in the key cross-over segment on a cumulative basis, albeit with a mild sequential improvement in April.  Asian market share gainers in this segment were Toyota, Mazda, Mitsubishi and Hyundai brands.  Hyundai's new Kona has been a key driver behind the brand's crossover segment share gains YtD.  For this year, the key challenge for Korean brands will be to what extent they can raise their presence in the light truck segments while simultaneously gaining share in the car segments.  In this respect, Ford's expected exit from car segments except for the Mustang and the Focus may provide a bit of relief to Asian brands over the next few years with relatively high exposure to sedans, given one less competitor in the space.Total Inventory has been rising, but so has production.  We would expect to see a production cutback in the coming quarters.On cumulative basis, Asian brands have been raising incentives on light trucks but cutting back on car incentives, while D3 have been showing a reverse pattern.  However, on a sequential basis it looks like Asian brands may be starting to cut back on both car and light truck incentives.While housing market conditions, employment and discretionary income patterns have been supporting a higher than long-term trend SAAR level, potential headwinds can come from rate hikes and tighter credit conditions especially in 2H18.  Inflationary pressures can also potentially erode any discretionary income gains that the average worker may have.  It will not be unreasonable to assume that U.S. SAAR this year can dip below 17.0m units depending on macro conditions in 2H.In the meantime, continued consumer migration to light trucks continue to favor D3 in the U.S. market in our view.

US Autos in April: SAAR Still Going Strong but with Looming Headwinds