U.S. auto sales in October turned in a performance reminiscent of what can now be called the good old days before last year's market collapse, about even with October 2008 but up 13 percent from September.
October saw the first year-to-year sales increase -- excluding the Cash for Clunkers months this summer -- in two years. Sales of 837,800 vehicles during the month translated into a Seasonally Adjusted Annual Sales rate of 10.43 million units - about the same number that the consensus of industry watchers is still predicting for total actual sales volume for all of calendar 2008. (The SAAR last October was 10.78 million.)
So after recovering from record doldrums in the first half of the year, and stabilizing in the wake of the Cash for Clunkers blip over the summer followed by the sales-drought "payback" in September, the October sales numbers reflected a U.S. auto market that is recovering slowly and -- automakers hope -- surely.
"I'm taking a glass-half-full approach here," said Jessica Caldwell, head of U.S. industry analysis for Edmunds.com. "We're right about where we were a year ago, which is the first time in a long time we've been able to say that.
"We've moved past the bottom [of the market] and are showing steady improvement."Echoed Fred Diaz, lead executive for Chrysler's sales organization: "The industry showed signs of improvement this month with increasing sales, which is a trend we expect to continue for the remainder of the year."
Bob Carter, vice president of the Toyota division of Toyota Motor Sales USA, said that he perceives "modest but positive changes in market conditions" and "a good upswing in the second half that bodes well for the future."
Joblessness Still Worrisome
Some economic indicators are promising, such as new-housing starts and a stabilization in housing values, as well as the 3.5-percent increase in third-quarter GDP. Yet Carter and other auto executives noted the massive economic and industry obstacles through which their industry still must work before they could foresee any kind of substantial recovery in the market.
The still-rising U.S. unemployment rate is among those problems. "You have to worry about that the most going forward," said Michael DiGiovanni, executive director of global sales analysis for General Motors. He noted that there also continues a "contraction in consumer credit."
Because joblessness continues to spread, Carter said, "consumer confidence remains very tentative. So we expect the recovery to be very gradual, extending into next year and beyond."
Wide Variation in Inventories
One major indication that the industry hasn't re-entered any kind of normalcy is that product inventories remain widely out of whack. OEMs slashed inventory early this year to try to adjust quickly enough to match falling sales. But then the spike in sales caused by Cash for Clunkers strained supplies of some hot-selling models.
And now, various automakers are having to recalibrate their strategies and adjust production levels for the scenario they believe is unfolding. They're trying to ensure that they have enough of the models that consumers want to ensure an adequate selection on dealer lots as a sales recovery begins to take hold - but not so many that they're stuck having to overly incentivize sales.
While its sales have become relatively robust, Ford, for example, has optimized inventory levels overall. And, significantly, about 90 percent of the vehicles in its dealer inventories are 2010 models, meaning that Ford won't have to spend as much as some competitors in financial incentives to get consumers to clear out 2009 models.
"We feel like we're just in awesome shape heading into the last two months of the year," said George Pipas, Ford's head of U.S. industry analysis.
Toyota has become similarly bullish about its inventories. After scraping the bottom of the barrel for many of its most fuel-efficient models over the summer, the Toyota division boosted its inventories to 150,000 units at the end of October, up from about 100,000 units as the month began.
Ideally, Carter said, Toyota division would like to have about 220,000 units of inventory, and he expects inventories to climb to around 200,000 units by the end of the year. Toyota dealers now at least are able to squeak by with a 30- to 40-day supply of most models, even though closer to a 60-day supply is ideal. But Carter noted that Prius and Rav4 supplies are still under 15 days each.
On the other hand, GM has more inventory clearing to do. It still has about 20,000 Saturn and Pontiac vehicles to sell as the company closes out those brands, and its inventories are roughly evenly divided overall between 2009 and 2010 models. Among other things, that means GM will have to be feeding more incentives to its dealers than some competitors, in order to clear out the older models.
"GM differs from Ford and Toyota in that they need higher incentive spending," said Caldwell, of Edmunds.com. "They just had a pretty heavy month on incentives and they still have a lot of '09 models to clear out."
Luxury, Pickups Turn in Winning Performances
The performance of two segments stood out in October: luxury vehicles and pickup trucks.
Luxury sales have been hit harder than any other segment over the last year or so, but October results provided some reasons for hope of a recovery. For example, sales by Toyota's Lexus luxury division rose by more than 15 percent over a year earlier.
Mercedes-Benz sales increased by more than 21 percent over the year-earlier month, though Caldwell noted that the company fielded "lots of incentives" in an effort to sell down 2009 models.
Meanwhile, pickup-truck sales showed some vigor. They were excoriated a year ago because gasoline prices reached $4 a gallon over the summer. And Toyota's Carter is still predicting that overall U.S. pickup-truck sales for 2009 will still amount to fewer than half the 2.5-million level of two years ago, even with "a solid tailwind" during the last two months of this year.
Still, said Caldwell, October "was a big truck month" as Chevrolet and Ford stepped up marketing spending to battle for market share and to try to tap into modestly renascent demand in the wake of gasoline prices that have stabilized way under $3 and glimmers of broad economic recovery in the land.
Even Japanese brands that advertised little during the month, Toyota Tundra and Nissan Titan, benefited from the high marketing spending in the category by GM and Ford and overall healthy levels of incentive spending to move pickups.
In October, 49 percent of vehicles sold were trucks; 51 percent were cars. In October a year ago, 46 percent were trucks and 54 percent were cars.
Market Share Breakdown
In terms of market share, the Detroit Three captured 45 percent of the market in October, that was down two percentage points from October 2008.
Market Share of the Big 7
GM 21.1%
Toyota 18.2%
Ford 16.3%
Honda 10.2%
Chrysler 7.9%
Nissan 7.2%
Hyundai/Kia 6.4%
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October Auto Sales Uptick May Presage the 'New Normal' - Auto Observer
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