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The world’s Big 8 automakers will release their U.S. June sales numbers on Tuesday, and industry watchers expect them to collectively report the best June since 2007, before the 18-month economic recession that sent car sales plummeting.
“The first half of 2013 was every bit as strong as the auto industry could expect at the beginning of the year, and there’s no reason why the next six months can’t maintain the same momentum,” said Jessica Caldwell, senior analyst at automotive-information provider Edmunds.com.
Improvements in U.S. housing, employment and consumer confidence amount to a trifecta win for the auto industry in the first six months of the year. Most automakers are expected to report year-over-year sales growth in June. The Ford Motor Co. (NYSE:F) is expected to see growth of between 13 percent and 14.8 percent, while the Hyundai Motor Co. (KRX:005380) and Kia Motors Corp. (KRX:000270) could be the only carmakers to see sales contract in low single digits.
The country’s top auto-market watchers estimate that the seasonally adjusted annual rate, or SAAR, of auto sales -- an important metric that gauges the health of the auto industry from month to month -- to be about 15.6 million units. Overall U.S. unit sales of cars and light trucks in June could be about 1.36 million, including government and company fleet sales, down from 1.44 million in May. Typically, auto sales are lower in June than they are in May because of the temporary sales pickup associated with passage of the April 15 U.S. income-tax filing deadline.
The last time the June SAAR of auto sales was higher than 15.6 million was in 2007, when it hit 15.8 million. Both figures are still considerably lower than the 16 million to 17 million seen in the early 2000s, but much higher than the 10.4 million seen in 2009 amid the auto-industry crisis that sent the General Motors Co. (NYSE:GM) and Chrysler Group LLC into reorganization under Chapter 11 of the U.S. Bankruptcy Code, as they sought bailout money from U.S. taxpayers.
Americans are currently buying new vehicles at a pre-recession pace despite lackluster macroeconomic indicators, such as 1.8 percent growth in gross domestic product in the first quarter and about 175,000 jobs a month being created, which is just enough to maintain the current unemployment rate at around 7.6 percent but not enough to push it down.
Nevertheless, purchases of cars and light trucks are continuing at a pace that could push the U.S. auto market into full recovery mode by next year, when annual new-car-sales numbers could approach pre-recession levels.
Fueling that demand is the strong American appetite for pickup trucks, especially the Ford F-150 and the Dodge Ram, and the recently upgraded swath of crossover SUVs.
“Compact crossovers will capture more market share than ever before at 13 percent, fueled by recent redesigns of the Ford Escape, Honda CR-V and Toyota RAV4,” said Alec Gutierrez of the automotive-valuation company Kelley Blue Book, or KBB. “Sales of the midsize segment are expected to be relatively flat year-over-year.”
Midsize sedans are traditionally the most popular style -- more than 200,000 were probably sold in the U.S. in June -- but only the demand for pickup trucks is higher than the demand for crossovers right now. KBB expects truck sales to climb in June by 18.9 percent, to about 164,000, and crossover sales to rise by 18 percent, to roughly 177,000. As IBTimes reported this month, subprime auto lending -- i.e., loans to comparatively high-risk borrowers who pay extra because of their increased repo risk -- has ticked up, but it is not at a level that appears to have raised any red flags.
The auto industry is also still creating new jobs and bringing back previously laid-off workers for extra hours this summer to meet demand, but the job-creation rate has passed its peak in this cycle of the industry. It doesn’t mean demand is declining, but it does suggest the industry is approaching the capacity needed to meet demand.
Of the eight largest automakers, all but Volkswagen AG (ETR:VOW3) have reeled in incentive spending from May to June. Five of these companies -- Volkswagen, Chrysler, Toyota Motor Corp. (NYSE:TM), Honda Motor Co. Ltd. (NYSE:HMC) and Nissan Motor Co. Ltd. (TYO:7201) -- have also dropped incentive spending in June from last year to this year.
Incentive spending -- encompassing what car companies offer as rebates on purchases -- eats into profit, so the higher they spend to lure customers, the lower their margins.
“Incentive spending will reach its lowest level in the month of June since 2002, with the exception of 2011, when inventories were affected by the [Tohoku earthquake and tsunami] natural disaster in Japan,” said Kristen Anderson, analyst for auto-information provider TrueCar.com.
The Detroit Three automakers continue their trend of spending more than the overall average of $2,537 per sale to get people to buy. GM tops the list of TrueCar’s June estimate on incentive spending with $3,513 per sale, 3.8 percent below May but 8.4 percent above June of last year.
Honda, typically ranked low on offering incentives, reeled in what it was offering before by the most, to $1,690 per sale, a 26.5 percent drop from June of last year.
Since May, GM is expected to see its market share rise by 1 percentage point, to 18.5 percent, while Toyota is expected to have lost the most ground in June, seeing its share of the U.S. market fall 0.5 percentage point, to 13.9 percent, according to Edmunds.com.
Jeep sales were likely hit by the spat between Chrysler and the National Highway Traffic Safety Administration: Chrysler first said it would not issue a voluntary recall covering 2.7 million Jeep Grand Cherokees and Jeep Libertys going back as far as 1993, but later relented due to concerns about its reputation. Nevertheless, strong pickup-truck sales by the group’s Dodge and Ram brands could push company sales in June higher by 10 percent compared with the same month last year.
Check back with IBTimes on Tuesday to see how these estimates fared against the actual numbers.