Mario So Funny

July Sales Up, But Inventory Hinders Recovery

By Dale Buss August 2, 2011

The July U.S. auto market remained in a suspended animation of sorts as carmakers and consumers appeared to be waiting out some crucial factors, though Tuesday’s short-term resolution of the U.S. debt-ceiling crisis removed at least one source of economic anxiety. Industry-wide sales came in at 1,059,097 units, a gain of about 0.9 percent over a year earlier. The seasonally adjusted annual rate (SAAR) of sales registered at 12.2 million units, about the same as a year ago and a nice gain from the June rate of 11.4 million units and 11.8 million units in May. Overall, there was a sense of disappointment that the market hadn’t been able to advance by July compared with the first quarter.

There have been lots of drags on the market, beginning with the supply problems of Japanese brands post-earthquake, continuing with high gasoline prices, and extending to renewed concerns about the U.S. economy. “The results were higher than some forecasts out there for July,” said Jessica Caldwell, Edmunds.com’s senior U.S. sales analyst. “But there’s a lot to be negative about. It could be seen as a lost market opportunity; we expected to be at a much better place at this point.”

Don Johnson, U.S. vice president of sales for General Motors, agreed that “the industry ran into severe headwinds. Yet, he said, GM confirmed its outlook for full-year 2011 sales to be between 13 million and 13.5 million units, if on the low end of that range. Similarly, Edmunds.com chief economist Lacey Plache has stuck with the company’s projection of 12.9 million sales for all of 2011. They and others cite positive factors such as the full-volume return of Japanese brands to the U.S. marketplace, stabilizing gasoline prices, some signs of improving consumer confidence even amid gloomy reports about joblessness and manufacturing activity – and, of course, the end at least for now of the budget wrangling in Washington.

Needed: More Cars
In the meantime, car buyers have continued to demonstrate a strong preference for fuel-efficient vehicles over lower-mileage ones. And that has caused a problem because small Japanese-brand cars still are in short supply as well as some American-brand models, such as Ford Focus (above) and Fiesta. Toyota reported higher sales but actually lower inventories at the end of the month as dealers gained the confidence in the knowledge of future supplies to make more sales now.

“Small-car sales continued to be constrained in July by limited inventory,” said George Pipas, Ford’s head of U.S. sales analysis. At the beginning of July, he said, the average days’ supply of subcompact cars across the market was 34 days, and of compact cars 30 days, compared with an overall industry average across segments of a 54-day supply. “Cars captured a smaller share of the overall market in July than in June,” he said, “while utilities gained strength industry-wide.” Meanwhile, pickup truck sales were about flat across the board, as strengthening sales to some types of commercial customers continued to be offset by endemic weakness in the housing industry, one of the main customers for pickups.

“August will be a pivotal month,” Caldwell said. “It may not turn out as strong as I had thought even a few days ago, because of doubts about the economic recovery, and because the inventory situation isn’t going to be even as good as had been expected. But August will give us a good indicator of what the rest of the year will look like. Most important, we’ll be able to see how the underlying economic story affects things. And it will tell us whether we’re going to see the release of that pent-up demand that a lot of automakers are waiting for.”

GM: Cruze News Again

General Motors sold 214,915 vehicles in July, up 7.7 percent from July 2010 but about flat from June. That still puts GM ahead for the year by nearly 16 percent. GM claims its retail sales were up 6 percent from last July and 1 percent from June. Again this month, the Chevrolet Cruze was the big story at GM. The compact car, which was the nation’s best-seller last month and came in second in July, had its fourth-straight month of 20,000 plus sales – 24,648 to be exact. The 42 mpg Cruze Eco accounted for 19 percent of Cruze retail sales. The Equinox also had a good month with sales up 73 percent to 17,094 units. Similarly, the Traverse was up 43 percent. Chevrolet sold only 125 Volts as the Detroit plant that makes them was down to prepare for the addition of the 2012 Malibu and the Volt-based Opel/Vauxhall Ampera for export.

The all-new Buick Regal continued to appeal to new consumers, more than doubling retail sales from a year ago. For the month, approximately 33 percent of Regal sales were turbo models. Chevrolet Camaro retail sales rose 7 percent, as demand for the all-new convertible model continued to rise. GMC was another bright spot for GM with sales up 36.4 percent, thanks to gains made by the Eqiunox-based Terrain and the Acadia, which shares it underpinning with the Chevy Traverse. Buick sales were up 4.3 percent with the Regal posting a hefty 106-percent gain in sales. Of those, 33 percent were turbo versions. Enclave sales also were up but Lacrosse sales and the soon to be dropped Lucerne posting declines.

Cadillac sales plunged 25.5 percent from a year ago with the previously hot SRX taking a 25-percent hit on top of every other Cadillac model posting a double-digit drop. GM executives blamed the decline from last July to an extremely strong month a year ago, making a positive comparison difficult as well as a planned drop in fleet sales. In addition, Cadillac executives said the luxury segment in total likely will show a decline for July from June, from the roughly 11.2 percent of the total market to 1 to 1.5 percentage points lower.

Sales of GM’s full-size pickups – Chevrolet Silverado and Avalanche, and GMC Sierra, increased 2 percent from June but were still in negative territory compared with a year ago. GM pointed out that retail sales rose 5 percent compared to last month. “The increase in industry sales of full-size pickups is consistent with our forecast, as more truck buyers come back into the market,” said GM’s chief sales analyst Don Johnson. “We expect continued modest growth in the segment for the remainder of the year.

Ford: Steady As It Goes

Ford reported sales of 189,315 for July, up 6 percent over year-earlier sales of 179,208, and a continuation of the company’s sales momentum powered by some of its newest vehicles as well as at least a momentary revival of its Lincoln brand. “We’re very encouraged because the increase appears to be driven by retail sales,” Pipas said. Czubay declared that the July results tended to validate that Ford is making good calls all over the place. “It’s our total value proposition: fuel economy and dependability, and we’re right on everything from small cars to new powertrains.”

Edmunds.com’s Caldwell acknowledged Ford’s continuing achievements but noted that “it’s a lot of product news, with freshened and new models, that has made a lot of headway for Ford. The pressure is on them now to continue their momentum as [Japanese] competitors [re-]enter the marketplace.” In fact, Ford believes that its own July sales could have been stronger were it not for persistent supply difficulties with its small-car models. Fiesta sales were up by 58 percent compared with July 2010, early in its launch, yet a 20-day supply of inventory so long after the car’s introduction is a strong indicator of its strong appeal, Pipas said. Los Angeles continued to be the top Ford sales region for Fiesta, a pleased Czubay said. “California is an emerging market for Ford when it comes to small cars,” he said. “They’re going right off the lots there.”

The supply situation of the Ford Focus was even more severe. Focus sales in July were actually 3 percent below a year earlier even though the new 2012 Focus was launched several months ago, in large part because of Americans’ overall strong demand for small, fuel-efficient cars that can’t be fully satisfied by supply-constrained Japanese brands just yet. “Basically, at our dealers right now we have about 25 percent of Focus inventories we had a year ago,” Pipas explained. “With sales being down only 3 percent with inventories that much lower, it really attests to how fast the car is turning. There’s no question it’s being pinched right now by tight inventories.”

Caldwell agreed that Ford “looks like they have the propensity to sell more” small cars. “That could have been a holdback for them, but the good news is that the pricing for those models is still very strong. Profitability is shifting from trucks and SUVs.” In fact, Pipas said that while the average transaction price in the industry rose by about $500 a car in July, Ford’s rose on average by about $1,000 in the month.

Fusion set a monthly sales record in July just as it has for each of the last 11 months and sold 151,004 units for the first seven months of the year, up 17 percent versus a year ago. Mustang and Taurus sales were down by 9 and 10 percent, respectively. Most of Ford’s utility vehicles advanced, with the segment improving by 31 percent in the month. Escape hit a monthly sales record of 24,211 in July. “It’s an older product,” Caldwell noted, “but people are looking for good value, and it provides decent value.” Sales of the new 2012 Explorer more than doubled compared with sales of the old version a year earlier, and Edge sales rose by 4 percent. Flex sales continued to tank, however, down 24 percent in July compared with a year ago.

Sales of Ford’s industry-leading F Series pickup trucks declined by 3 percent compared with a year ago. But “commercial demand was very strong,” Czubay said. “Large and small businesses continue to replace their aging fleets” of pickup trucks. And for the third month in a row, V-6 engines outsold eight-cylinder powertrains in the F-150, 56 percent to 44 percent in July, as truck customers continued their bent toward better fuel economy. Caldwell doubted that the just-announced recall of 1.1 million F Series trucks would have much of an effect on sales or market share.

Lincoln showed more sales spark than it had all year, with a 40-percent sales increase over a year ago, paced by the brand’s newest products, the MKZ sedan and the MKX crossover. That encouraged Czubay, who noted that the brand also will be introducing seven new or substantially overhauled products over the next couple of years. “We’ve dedicated our production and marketing organizations to making Lincoln a world-class luxury brand,” he said.

Toyota: Tough Slogging

Toyota Motor Sales U.S.A. posted a 23-percent decline in U.S. sales compared with a year ago, to 130,802 units, as the company continued to deal with the fallout from its supply-chain collapse after the disaster in Japan in March. The dynamics have improved for Toyota as the company gets closer to a return to full production of its models in the United States, and July sales were 18 percent higher than in June. But Toyota’s dealers appear to be whisking new vehicles out the door as quickly as new supply trickles in. Toyota’s U.S. inventories were only 150,000 units at the beginning of August, an actual decline from 180,000 units in inventory at the beginning of July.

Also this week, Toyota executives indicated that they don’t expect the company to return to its “old” market share in the U.S. market until March. “That’s a bit late,” Caldwell said. “That indicates some production issues aren’t quite settled.” Meanwhile, in turn, the constrained selection and inventories tend to discourage some sales. “There were market opportunities to sell Corolla, Yaris, and Lexis vehicles overall” that the company couldn’t convert because of continued difficulties with its supply chain.

Toyota executives explained the situation. “Availability continues to improve faster than expected,” said Jeff Bracken, vice president of Toyota Division sales, noting that Toyota’s share of the U.S. market actually increased in July – by nearly 2 percent, the first time since March that it marked a boost. Retail sales in July, he said, were “especially strong” – up 23 percent from June. And because Toyota has been focused on regaining retail footing, fleet sales during the month were just 2 percent, far below even the company’s usual single-digit-percentage target for fleets.

Still, the inventory situation presents a continuing challenge for them. “Inventories are not rebuilding as rapidly as we thought they would, said one executive, Randy Pflughaupt. Available supplies “are being converted by dealers into sales, so inventories are improving at a little slower pace” than Toyota had expected as it worked to emerge from its supply crisis. “We expect availability to improve each and every month through the end of the calendar year … and we’ll be in much, much better shape as we move into the balance of the year.” But, he said, “it will probably be beyond the end of this calendar year before inventories return” to 2010 levels. So while Toyota expects to be back to full production on a global basis soon, a somewhat quickening sales pace will keep inventories depleted to some extent for months to come.

In the meantime, Toyota executives said they are dedicated to keeping the Toyota Camry the best-selling car in America. July sales were 27,016, down by 20 percent on supply constraints. Plus, a new 2012 Camry will be unveiled later this month. “We haven’t started building the new model yet, so we’ve got lower-than-expected inventories,” Bracken said. “But still we’ve got great selection. We’re in very good position as we sell down out of ‘11s and begin production of ‘12s in September.” He added that Toyota would “stay in a competitive position in terms of incentive spend and marketing communications” on Camry. “That No. 1-selling-car claim is very important to us, and we’ll do all we can to retain that claim.”

Meanwhile, Prius, one of the most supply-constrained Toyota models, sold more than 7,900 units in July. That was about 42 percent fewer than a year earlier. But Toyota knows that tens of thousands of new Prius units are to be delivered to the United States yet this summer and so executives chose to accentuate the positive. Increasing availability and sales of Prius from second-quarter levels are “perhaps the most encouraging sign that things are continuing to move forward for us,” Bracken said. Sales of Sienna minivan rose by 6 percent in July. RAV4 and Highlander nameplates posted improved sales, as did the Venza mid-sized crossover. Sales of Tundra and Tacoma pickups combined registered an 8-percent decline, hardly surprising, Caldwell said, considering the tough sales environment for trucks these days. The Scion brand, awaiting the introduction of a new iQ “mini” model later this year, posted a 22-percent decline in overall sales.

Lexus is having a hard time getting up off the mat after winning the 2010 U.S. luxury-segment crown, now having to watch BMW and Mercedes-Benz slug it out for the 2011 crown. Brand sales were off by 20 percent even though showroom traffic was higher than a year ago. “We hit the bottom of the trough of availability in June,” said Brian Smith, a Lexus sales executive. “We’re on our way back. July sales exceeded our plan, and with increased availability, we’re gearing up for a typically strong fourth quarter for Lexus.”

Chrysler: Driven By Jeep

Chrysler posted a 20-percent sales increase, leading all major automakers on a percentage-gain basis, selling 112,026 units in July compared with 93,313 vehicles a year earlier. The company continued its resurgence led by a big gain in Jeep brand sales, but performance improvements were sprinkled elsewhere in its vehicle lineup too. “In a market that remains tougher than a cheap steak, we were able to produce our highest retail sales in more than three years,” noted Reid Bigland, president and CEO of the Dodge brand and head of U.S. sales. “I think that statistic is the ultimate testament to the progress we have made with our product in the areas of fuel economy, quality and design.”

Chrysler, Jeep and Dodge brands each registered year-over-year sales gains in July, while the Fiat brand – returning to America this year with a single model, the 500 city car – registered a 68-percent increase compared with June. Car sales increased 28 percent in July, while truck sales overall were up 18 percent. Jeep was the best performer, with a 46-percent sales increase in July, the brand’s best sales volume since March 2008 and its 15th consecutive month of year-over-year sales gains. All five Jeep models posted a sales increase compared with the same month a year ago, led by Wrangler and its record sales volume of 14,355 units in July. Sales of the new Grand Cherokee were up 76 percent compared with the old version it replaced last fall.

The Dodge brand was an overall disappointment. Stocked with muscle cars that aren’t appealing to many consumers in the middle of gas-price inflation, Dodge struggled to a 9-percent overall improvement. But that was only because sales of its Caliber small car rose by 14 percent compared with a year ago, while sales of the new Durango SUV – a nameplate that basically disappeared from the market for about two years – surged to nearly 5,400 units in July. The Chrysler brand struggled, as sales of the new 200 were more than double the Sebring compact that it replaced, and sales of the significantly improved 2011 300 rose by 6 percent just weeks ahead of the introduction of a new 2012 version. But sales of the Town & Country minivan were down 20 percent in July. Meanwhile, sales of the Ram pickup-truck line were flat, as the July sales environment for its segment worsened.

Nissan: Inventories Building, Infiniti Struggles

Nissan North America sold 84,601 vehicles wearing Nissan and Infiniti nameplates, an increase of 2.7 percent from July of last year and up 17.6 percent from June. Nissan Division sales accounted for the bulk at 77,191 units for a 6.4 percent increase from a year ago. Infiniti, particularly hard-hit by the aftermath of the March 11 earthquake as most of its vehicles are Japan made, fell 24.1 percent to 7,410 vehicles. The recovery from the tight inventories caused by the earthquake was obvious with improved sales in models that had been particularly hit by depleted supplies. Among them, the Rogue set a new July record of 11,260 units, a 2.7 percent rise from a year ago, and the Juke with 3,221 units. Nissan Leaf sales climbed to 931 units in July.

The U.S.-built Nissan Frontier had another strong month with sales up 21.8 percent from a year ago to 4,832 sold. Nissan’s best selling Altima were up 16.8 percent, much of the rest of Nissan’s car line, including the Versa, Sentra and Cube, saw double-digit sales drops. The all-new NV commercial vehicle pitched in 678 units, a 53.6 percent hike from June; the Quest minivan had 1,426 sales. Aside from Frontier and Pathfinder, the rest of Nissan’s truck models had sales declines.

The Infiniti side of the Nissan house remained tough, though improved from June. Sales of every Infiniti model were off by double digits compared with a year ago. But sales of every Infiniti model increased from June, indicating inventories are being replenished. The automaker received more than 10,000 Infiniti vehicles in July for sale during the month. Infiniti sales in total were up 18 percent from June, although down 25.9 percent from a year ago. For the calendar year, Infiniti sales are off 4.2 percent to 54,678 vehicles.

Honda: Still Struggling Inventory

Honda’s sales report was – well, ugly. In total, American Honda sold 80,502 Honda and Acura branded vehicles in July, a 28-percent plunge from a year ago. Honda was not only outsold by Chrysler this month but also Japanese rival Nissan, a rare event that has not occurred since March 1997. There was but one model on the entire sales report that showed a plus sign, that was the Pilot with sales up only 8 percent. Every other model in Honda’s inventory-savaged line-up was off by hefty double digits: the volume leading Accord, down 25 percent; the Civic, being produced in its newest version at reduced levels, down 37 percent; the fuel-sipping Fit, down 22 percent; the ridgeline down a whopping 75 percent; the Insight hybrid, down 45 percent; the Odyssey, off 32 percent.

The picture on the Acura side of the ledger was no prettier. Its sales totaled 9,402, down about 25 percent from a year ago. Every model in the Acura line was off double digits, including its top-selling MDX, which had sales down nearly 15 percent to 3,438 units. “We look forward to improved inventory levels in the coming months as most of our North American facilities begin to return to full production in August,” said John Mendel, American Honda executive vice president of sales.

Dale Buss:  is a frequent contributor to AutoObserver.com.