Thoughts On December Sales And SAARBy Jeremy Anwyl December 10, 2011
Last weeks auto sales reporting generated a buzz in the media with the news that November sales exceeded expectations and hit 13.6 million on a Seasonally Adjusted Annual Rate basis.
I had to smile when reading these reports. First off, because our analysts forecast was precisely for a SAAR of 13.6 million, so I was not sure whose expectations were being exceeded. Secondly, the overall sense from those reporting November sales was that pent-up demand was finally being released and this was behind the sales increases of recent months.
Pent-up demand is indeed a factor at the moment, but it is in the background. As we have been pointing out since last spring, the Japanese earthquake triggered a series of events that resulted in market conditions (specifically high prices) that kept consumers from buying. These were consumers who were fully ready to purchase, but decided to wait. As soon as the market normalized, we expected they would return.
In September, shortages eased slightly. Further supply improvement occurred in October and again in November. And as you would expect, consumers are returning. This is significant because pent-up demand is a real market factor. Over time, we estimate that fully 4 million vehicles will be added to the sales totals that can be attributed to consumers who returned to the market after delaying due to economic concerns.
These 4 million obviously are significant, but will play out gradually. What is driving recent sales increases is the return of buyers put off by market conditions over the summer. This is a short-term phenomenon and will have played itself out by early next year. This means we should expect a slowdown in the SAAR in the upcoming months. But dont take this as an indicator that the economy is slowing, or that the recovery is threatened. Similarly, we shouldnt get overly excited about the current lift in sales.
In fact, there is a view of recent sales that is instantly sobering. It shows that sales, when viewed in term of units sold, not an adjusted SAAR, have essentially been flat for months.
Another thing to consider is that sales in December are assumed by the SAAR algorithm to be relatively high. To match the SAAR performance of November, unit sales in December will need to jump by roughly 30 percent. We expect sales in December will continue to be strong, but a 30-percent increase is a tall order. So December sales could actually be very strong, but the SAAR could decline.
All this could cause you to naturally wonder about the usefulness of using SAAR when reporting monthly sales at least in times of volatility. It does, after all, only adjust for seasonality; SAAR makes no attempt to normalize for earthquakes, tsunamis, floods, or even mundane factors like recessions.
On the other hand, it does offer the benefit of simplifying the monthly sales results. That alone is enough to retain SAAR as the number everyone quotes.