12.2 Million SAAR Seen For May; Honda Clobbered

By Michelle Krebs May 26, 2011

May 2011 SAAR Forecast.jpg

May's Seasonally Adjusted Annualized Rate (SAAR) of U.S. auto sales will come in at 12.2 million vehicles, down from 13.2 million in April, Edmunds.com forecasts. The drop is not the result of an economic slowdown but rather real and perceived inventory shortages coupled with higher vehicle prices and less-attractive incentives as a result of the March 11 Japan earthquake and tsunami that disrupted production of Japanese and, to a lesser extent, other automakers. Edmunds.com forecasts industry retail and fleet sales will total approximately 1,098,000 vehicles in May, a 0.4 percent decrease from May, 2010 and a 5.1 percent decrease from April. Retail sales are expected to be approximately 865,000 units, down from 915,000 in April for a retail SAAR of 9.7 million vehicles. Automakers report May sales on June 1.

“While we don’t have May’s data yet, all indicators are still solid regarding a continuing economic recovery,” said Edmunds.com Chief Economist Lacey Plache. May’s reduced new-vehicle  sales, Edmunds.com believes, are the result of the effects of Japan’s earthquake on vehicle inventory, amplified by the effects of the shifting demand of vehicle mix and price hikes.  Higher gasoline prices have shifted demand to smaller, more fuel-efficient vehicles, which are in short supply, and away from big trucks and SUVs.  In addition, consumer preferences for Japanese vehicles are resulting in more consumers waiting for an increase in inventories rather than switching brands, she said.

052611_Sales_Forecast_Chart_-_AO.jpgMay Losers/Gainers
Honda got clobbered in May, hurt by weakened supply and rising prices, particularly on its high-volume Civic (top) and Accord models. Edmunds.com forecasts Honda will have it worst May for unit sales – 83,300 vehicles sold – since May, 1997, and its worst market share – 7.6 percent – since June, 2005. Honda is predicted to fall behind Chrysler, which it had surpassed during Chrysler’s Chapter 11 bankruptcy, and Honda will barely stay ahead  of Nissan. Honda’s market share, which includes the Honda and Acura brands, likely fell more than three percentage points from April to May to 7.6 percent, from 10.8 percent. Toyota probably won’t fare much better. Edmunds.com forecasts its sales will be down nearly 23 percent from a year ago and 22 percent from April. As a result, Toyota likely lost more than 2 points of market share from April to May.

So where did those sales and market share go? Of the Big Six, General Motors, Ford, Chrysler and Nissan all gained. Edmunds.com CEO Jeremy Anwyl noted that Detroit automakers were presented with “a once-in-a-generation opportunity” to reclaim market share from Japanese automakers, not only because of Japan’s woes but also due to domestic makers having quality small cars available in a market that’s increasingly shifting toward the compact segment due to high gas prices. “ Because the domestic supply of these vehicles has been less affected by the March 11 earthquake than similar offerings from the Japanese, prices have remained much more stable,” said Anwyl.  “As a result, cross-shopping behavior on our Website?  has shown a remarkable shift of consumers considering Detroit vehicles with greater frequency."

052611_MS_Forecast_Chart_-_AO.jpgBut, by far, the biggest winners in May likely are South Korean makers Hyundai and Kia. The two affiliated brands combined probably will sell  more than 109,000 vehicles  in May for a combined market share of 9.9 percent. That would rank the Hyundai/Kia combo No. 5 behind GM, Ford, Toyota and Chrysler, and ahead of Honda and Nissan. However, both Hyundai and Kia will have trouble gaining much more ground as their supply of vehicles is running low. Meantime, Japanese automakers are putting plants back to work quicker than even they initially anticipated and their inventories are building to pre-quake levels.

“Manufacturing disruptions appear to have peaked in April and May,” said Edmunds.com’s Plache. She points to recent news about steady improvements moving forward. Toyota said it expects North American production on its top-selling Camry and Corolla models to be back at 100 percent next month. Nissan’s key engine plant in Japan is returning to full production ahead of schedule next week. Even Honda, which was the hardest hit of the Japanese automakers, is making optimistic statements about its recovery. “ If these disruptions continue to resolve at a strong pace, we are optimistic that the impact on 2011 auto sales will be limited,” Plache said.

Incentives Drop
Edmunds.com estimates incentives averaged $2,002 per vehicle in May, down, $107 per vehicle, or 5.1 percent, from April and down $695, or 25.8 percent, from last May. Incentives haven't been below $2,000 a vehicle since November 2005 when they averaged $1,962 per vehicle. Honda and Toyota took divergent paths regarding incentives during the month. From April to May, Honda pulled back incentives by a whopping 45 percent to an estimated average of $924 a vehicle. As a result, its retail share of sales dropped week after week from 10.3 percent the week of May 11 to a predicted 9.6 percent for the month, according to Edmunds.com calculations based on actual sales transaction.

Toyota, likewise, retreated on incentive spending at the start of the month but, likely seeing the impact on sales, quickly put strong incentive programs into place during the month. Its retail share began dipping in the early weeks of the month but picked up by month’s end. For comparison, Nissan increased its incentive spending by 6 percent; its retail market share held steady throughout the month with a slight uptick expected by the end of the month. Ford and Chrysler lowered incentives; GM hiked its incentives by nearly 10 percent.

052611_SAAR_Forecast_-_AO.jpgPrices Up, Inventory Declines
As a result of strong demand and tight inventories, vehicle prices have been increasingly steadily since the March 11 Japan earthquake. However, the weekly march of price increase came to a halt last week, with average new car price actually falling $20 last week.  Nevertheless, average car prices are still $370 higher than since before the earthquake. Japanese vehicles are down $50 in the last week, but up $610 since the earthquake. South Korean vehicles are down $80 in the last week but up $170 since the earthquake. U.S. makes are up $30 in the last week and $140 since the earthquake. European makes are down $100 in the last week and down $50 since the earthquake. By segment, the largest increases have been on fuel-efficient smaller vehicles. The largest dollar increase has been in premium midsize category; the highest percentage increase has been in the premium compact segment, where the largest drops in inventory have been experienced.

The entire U.S. auto industry is experiencing a decline in vehicle inventory. Edmunds.com calculations show the Days-to-Turn (DTT), the number of days from a vehicle being delivered to a dealership until it is purchased by a customer, stands at 50, that’s down from the pre-Japan earthquake level of 56 days, which wasn’t overly abundant. Interestingly, it is the Detroit Three and the South Koreans experiencing the sharpest declines in inventory. The domestics are at a 49 DTT from a pre-quake level of 57 DTT; the Koreans are down a full week from 47 to 40. The Japanese automakers are at 56 DTT, nearly back to pre-quake levels of 57 DTT. The Europeans are at a stable 45 DTT.

Edmunds.com CEO Anwyl wrote in an AutoObserver commentary that media hype about dwindling Japanese inventories has actually helped Japanese brands maintain a steadier DTT than their  American and South Korean counterparts. Still, the shortages are real particularly in popular categories of smaller, fuel-efficient vehicles. The DTT on the popular premium compact segment has plummeted to 42 DTT from pre-quake’s 62. In stark contrast, inventories of full-size SUVs have increased to 67 from 55 DTT.

May 2011 Big Six Sales Forecast
The combined market share for General Motors, Ford and Chrysler is estimated at 49.2 percent in May, up from 47.6 percent last May and up from 46.6 percent this April. Edmunds.com forecasts the following sales and market share performance for May by each of the Big 6 automakers as follows:

- GM will sell 227,900 vehicles, up 2 percent from May 2010 but down 2 percent from April for a market share of 20.8 percent, up from 20.3 percent last May and up from 20.1 percent in April.

- Ford will sell 196,700 vehicles, down a scant 0.1 percent from last May but up 3.6 percent from April for a market share of 17.9 percent, flat from 17.9 percent last May but up from 16.4 percent this April.

- Toyota will sell 125,500 vehicles, down 22.9 percent from last May and down 21.3 percent from April  for a market share of 11.4 percent last May and down from 13.8 percent in April.

- Chrysler will sell 115,900 vehicles, up 10.6 percent from last May but down 1.1 percent from this April for a market share of 10.6 percent, up from 9.5 percent last May and up from 10.1 percent as in April.

- Honda will sell 83,300 vehicles,  down 28.9 percent from last May and down 33.3 percent from April for a market share of 7.6 percent, down from 10.6 percent last May and down from 10.8 percent in April.

- Nissan will sell 82,800 vehicles, down 1.1 percent from last May but up 15.8 percent from April for a market share  of 7.5 percent, down from 7.6 percent last May but up from 6.2 percent in April.

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