August is always a good month for U.S. car dealerships, as automakers push hard to clear inventory and Americans flock to showrooms, especially during the three-day Labor Day weekend. This year should be particularly prosperous as the auto sector heals from its 2009, post-Great Recession, fall with the help of the near-record levels of auto lending. And though deliveries are expected to be flat compared to last August’s great performance, they’re still expected to be up by 3 percent from last year, adjusting for the one less selling day in August.
“We expect sales to continue at a healthy pace through the end of the year, finishing out 2014 with 16.3 million total new-car units,” Jesse Toprak, chief analyst for car shopping site and marketing company Cars.com, said in an email. In 2007, U.S. consumers bought 16.1 million vehicles.
Consumers are spending more this month, too, gravitating to higher-cost SUVs and crossovers and away from small sedans. They’ll spend a near-record $39 billion on new automobiles, according to auto sales trackers J.D. Power and LMC Automotive. The seasonally adjusted annualized rate, a key metric that uses a 12-month running estimate to gauge auto-market health and consumer confidence, is expected to come in at 16.6 million units.
Coming out ahead among the world's Big 8 automakers this month is Fiat-Chrysler Automobiles, which Edmunds.com believes will sell 15 percent more vehicles than it did in August 2013. Consumers are piling into the all-new 2014 Jeep Cherokee midsized crossover, introduced late last year, and the second-generation Chrysler 200 midsized car that went on sale this summer. Chrysler has now surpassed Honda as the fourth-biggest U.S. car seller and is expected to deliver over 35,000 more units than Japan’s second-largest automaker.
“Chrysler is the only brand that’s really up on a year-over-year basis. Market share is down for Volkswagen. They continue to struggle,” Eric Lyman, vice president of industry insight for TrueCar.com, the auto market data and online car seller, said by phone on Thursday.
Besides FCA, the South Korean siblings Hyundai Motor Co. (KRX:005380) and Kia Motors Corp. (KRX:000270) are the only others of the Big 8 expected to grow market share as smaller companies like Subaru and luxury carmakers like BMW snatch away some Big 8 sales.
Consumers continue to flock to SUVs and crossovers as they have for the past few years. While midsized sedans and low-priced compact cars still dominate the industry – last August Americans bought about 450,000 of them – the larger vehicles are gaining ground. Automotive pricing and data provider Kelley Blue Book puts utility vehicle sales at nearly 200,000 in August. At the current pace, they could soon surpass midsized cars as the second-most popular segment.
John Mendel, executive vice president for Honda America, said earlier this month that the industry was acting stupidly with cash incentives, which have been edging up as companies seek to lure consumers. Honda traditionally loathes to get into cash-incentive wars with rivals, which is showing up in its losses to Chrysler this year.
Honda saw its market share decline from 9.7 percent to 9.1 percent in the first seven months of the year as rivals engage in costly incentive battles, offering larger rebates and longer-term, no-interest deals. The financing war went to extremes this summer when Ford Motor Co. (NYSE:F) on July 29 began offering zero-percent financing for six years on new car buys as part of a month-long promo that ends Tuesday.
These offers have been fueling much of the auto industry growth through the anemic post-recession recovery that entered its fifth year this summer. Americans who drove their old cars through the last recession and recovery have been lured by these incentives. Some expect this pent-up demand to last another few years, after which demand will decline to more normal levels. But because automakers have been pushing hard to attract customers, that leveling-off could come sooner.
“The automakers are sort of robbing Peter to pay Paul, but we’re still in a period of pent-up demand following the downturn,” Lyman said. “We estimate that this higher demand would last until 2017, so if buyers are moving their purchases forward to take advantage of the offers, then the pent-up demand might be satisfied earlier.”
The auto market will have reached that point when the annualized rate – the number of cars bought by Americans over a 12-month period, adjusted for seasonal fluctuations – begins to taper off. That’s not happening this year. By January, Americans will be buying cars at an average rate equivalent to that of 2007, prior to the collapse of the housing market and the longest economic contraction since the Great Depression. With U.S. lending interest rates expected to begin rising before 2016, there could be softening demand for autos within the next year. Until then, automakers will continue to reap the benefits of cheap lending.