June Gyrations Stir Sales ForecastBy Jeremy Anwyl June 27, 2011
Edmunds.com issued its forecast for June auto sales to hit at a Seasonally Adjusted Annual Rate of 11.9 million. This one will be tricky to get right, though, partially due to quirks in the calendar, but largely because market reaction from manufacturer price increases and supply disruptions still is playing out. The 5-week month doesnt close until the end of this week and much can change.
I was looking at the actual number of vehicles available for sale on dealer lots. The number stopped declining in the last week of May, but still has not started to increase. For some models, it was even still dropping (good luck getting a Toyota Prius). The inventory situation is significant. Prices were starting to drop by mid May, but that movement has mostly stalled. Some prices have even increased a trend that is not good for sales.
Against this backdrop, Toyota and Honda have returned to offering incentives. Looking at Junes depleted inventory levels, one could ask, Why? Clearly, the two companies sharply reduced late-April and early-May sales shocked them into action. And both companies now have more vehicles on the way. But with low levels of dealer inventory, sales gains in June nonetheless will be limited.
Complicating this, some current incentives can be applied to ordered vehicles. These sales wont be reported until the vehicle is delivered. If the number of these ordered vehicles is significant, forecasting could get even harder. But we dont see this being the case. First, the incentives are not so rich that consumers will feel compelled to jump in. Second, most customers prefer to take delivery when handing over a check. Moreover, customers who partake most likely are committed buyers who would have waited, anyway.
Two final notes: Inventory levels only tell a part of the story. Tracking demand vs. inventory shows the domestic automakers are in worse shape than the Japanese; Ford, in particular, stands out. Worse, in this case, is from the customer perspective, however. Ford and its dealers surely view low inventory and high demand as a high-grade problem.
Lastly, another calendar fluke: the Fourth of July weekend typically is a significant sales event and the ramp-up to the holiday weekend usually adds some month-end lift to June. But this year, July 4 is on a Monday, so we see any potential June sales lift as being lower than normal and fully reported in July.
In looking at Junes weekly sales data, it has been stable throughout the month, pointing to an 11.9 million SAAR. Taking into account all of the factors above, we now see a boost during the last week as unlikely. You can read the full forecast here.