August New Vehicle Sales Barely Up. U.S. Economy Still Stalled

It looks like the new vehicle retail sales for August will continue at a seasonally adjusted annualized rate (SAAR) of a mere 9.9 million units since sales for August are projected at 898,000 units. The retail selling rate is just slightly higher than in July, although volume remains essentially flat.

Total light-vehicle sales in August are expected to come in at 1,074,900 units, which is just 4% higher than in August 2010, according to J.D. Power and Associates. August, like July, is normally a low fleet month, with sales of 177,000 units expected—which is 16% of projected total sales.

“The selling rate in August is expected to be slightly stronger than in July, but without a significant increase in incentive levels or a reversal of the economic woes, there isn’t a compelling reason for those consumers sitting on the fence to return to dealer showrooms and purchase a vehicle,” said Jeff Schuster, executive director of global forecasting at Power.

Not surprisingly, Power is once again lowering its forecast for light-vehicle sales in 2011 and 2012, as the slower recovery is now expected to extend into next year. Total light-vehicle sales for 2011 are now predicted to come in at 12.6 million units.

This is still a 9% increase from a slow 2010, but is down from the previous forecast of 12.9 million. (Ford Motor executives still maintain that sales will come to 13-13.5 million units in total.) Retail light-vehicle sales are now forecasted by Power at 10.2 million units for 2011 (down from 10.5 million).

For 2012, the outlook for total light-vehicle sales has been reduced to 14.1 million units (down from 14.7 million). Retail light-vehicle sales are now at 11.5 million units (from 12 million).

“The economy and automotive industry continue to wrestle with a series of unsettling developments, which are now likely too strong to overcome within 2011,” said John Humphrey, senior vice president of automotive operations at Power.

Since Power has many automotive clients, it is generally optimistic in its outlook. Hence some careful language: “While it is not time to hit the panic button, it is clear that ascending from the recession is proving to be just as bumpy as the decline into it, and a full recovery in vehicle sales is further down the road than previously thought,” claims Humphrey.

North American Production

Light vehicle production in the North American region has increased by 8% through the first seven months of 2011 from the same period in 2010, with volume of 7.3 million units. At the country level, production in Mexico is showing the strongest year-over-year change, rising 16% with the addition of the Fiat 500, Ford Fiesta and new VW Jetta models. This trend, a clear result of the controversial NAFTA, will likely haunt the Obama Administration next month when it tries, once again, to bring several so-called free trade agreements to the Congress for passage. Fierce union opposition, particularly to what the unions say is a job destroying agreement with South Korea, has keep the agreements tied up in committee. The political problem posed by a key constituent group for the Democrats will not get any easier as long term unemployment continues at record post Great Depression levels and the 2012 presidential election draws nearer.

The U.S. follows Mexico in auto production gains, with an 8% increase, while volume in Canada is off 1% – hurt for the moment by production losses from Honda and Toyota.

Vehicle inventory has decreased to a 49 days’ supply at the beginning of August, down from a 54-day level in early July, mainly due to the typical July shutdown at many of the assembly plants last month. Car inventory was at 40 days, while truck supply was at 58 days—both low for their respective norms.

Several manufacturers continue to have limited availability: Hyundai/Kia with 19 days’ supply and Honda with a 28 days’ supply. Production continues to support inventory replenishment, but it likely won’t be until October before closer-to-normal industry levels (60 to 65 days) are reached, according to Power.

The 2011 North American production outlook has been trimmed slightly, but it continues to round to 12.9 million units. The decrease is the result of the reduction in the outlook for vehicle sales, but it is not as severe due to the current low level of inventory. Had the sales pace returned to the strength shown at the beginning of 2011, production would have needed to be increased in order to meet the demand and replenish inventory levels by the end of the year.

“There is little question that a strong level of pent-up demand exists, but economic and financial uncertainty is keeping it from being released,” claimed Schuster.