May Sales Drop – A Blip or a Trend?

Just when we were beginning to feel good about the auto industry following eight months of sales growing by percentages in the double digits, sales plunged in May, down 4% from May of last year.

The question is whether the drop will be a trend the rest of the year or a “minor” disruption for a couple of months. The major challenge is lack of inventory resulting from the earthquake in Japan earlier this year. The lack of inventory has led to record average transaction prices of nearly $29,000.

With little to no inventory, incentives have plummeted, especially those from the Japanese companies. According to TrueCar.com, incentives in May were at their lowest level since 2002. High gas prices that have likely kept buyers out of showrooms haven’t helped either.

Toyota’s sales dropped almost 28% from last year while Honda sales were down 16.1%, according to Ward’s AutoInfoBank.

Sales for General Motors, Ford and Chrysler, however, continued to increase, although at a slower pace than earlier this year.

The good news is that production appears to be coming back and should be at normal levels by the end of June with inventory reaching dealer lots in July and August. Already, Toyota has jumped back into the incentive game last week offering numerous deals on its top vehicles.

For dealers, it’s a matter of timing of when to ratchet up the advertising again. Dealers also should keep a close watch on used vehicle inventory and pricing. Used vehicle prices have jumped along with new vehicle prices creating a likely used vehicle bubble, but once incentives come back in August look for that bubble to come back to earth in a big way.

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Comment by Brian J Walter on June 8, 2011 at 5:34pm: At our dealership we just had a great May. Now we have Chevy and KIA, two brands on the way back up. Although June is starting very slow. As I check around with other KIA dealers they also came off record May numbers but are slowing in early June. I think a down is just a blip or minor correction due to the Japanese situation. I can only see going up baring another National Tragedy. The Toyota dip is because the cars lack excitment. It's hard to stay on top once you get there.

Comment by Michael Baker on June 8, 2011 at 1:25am: Cliff- Appreciate the post with your vast amount of Industrial insight from the past. Anyone can not predict the confidence of consumers as we enter into the Summer 3rd Quarter. Not so sure that incentives of the OEMs will equate to a podium position of near future results vs. the supply of consumer import commodity configurations that consumers want... Brian's SAAR of 15m is a tad high with the rental/fleet companies depending on this incentive/supply debacle. Retail sales will likely hit 12m w/o F/R incremental sales. Pre- owned access in supply will overcome new deficiencies of the current conditions of shortages of higher volume dealer imports, with Dealer focus and aggressiveness, as Brian does year in and year out.

Comment by Brian Benstock on June 7, 2011 at 9:11am: With automotive "experts" telling consumers that this is a bad time to buy a car, with inventories at a low level, with manufacturer incentives at a reduced rate, with dealers pulling back on advertising, it is no wonder that we have had a slight pull back in NVS. The overall trend is strong- we are well on our way to a 15,000,000 Annual Sales Rate, the path may not be straight up, but the direction and outcome will be clear. Manufacturers and dealers that prepare for this result will reap the rewards...

Comment by Marsh Buice on June 7, 2011 at 9:05am: Cliff, very informative. Just when we think we are kicking into gear, something seems to jump out at our industry. I think we will see slow, progressive growth-some months we may take a step back, but then the next we may go 1 1/2 steps forward. We are used to seeing things happen fast in our industry and this will not be a quick one. Because of that we will see steady growth and not flash-in-the-pan results. Whatever that may be, I am jumping on this horse and riding it all the way :) Thanks for the post.