April takes a bit of air out of U.S. car sales

After slower U.S. light-vehicle sales in January and February, there was a jump in March, and some industry observers thought it would carry into April. It didn't.

An auto sales phenomenon known as the "spring bounce," when some Americans decide to use tax refund checks as down payments on new vehicles, or just generally get an itch for a new car or truck with the improved weather, appeared to have fallen flat in April.

New-vehicle sales dropped 2.3 percent last month to 1.33 million. Analysts such as Cox Automotive, Edmunds, J.D. Power/LMC Automotive and TrueCar's ALG had expected a modest rise from a year earlier. Even with an extra selling day — 25 days last month vs. 24 in April 2018 — sales slipped.

April's seasonally adjusted, annualized selling rate slowed to 16.4 million, down from 17.4 million in March and 17.3 million in April 2018. The average of 10 analyst estimates in a survey by Bloomberg was for a pace of 16.8 million last month.

Cox senior economist Charlie Chesbrough said that the spring numbers could be deceiving. "I don't think March was as good as the numbers say and I don't think April was as bad as the numbers say," Chesbrough said. He added, "But clearly the trend is we're down from the pace we had in the fourth quarter of last year" when the SAAR averaged 17.6 million, according to the Automotive News Data Center.

For all of 2018, sales totaled 17.3 million, a number that surprised many analysts and executives. After toppping 17 million for three straight years, 2018 was widely expected to cool off.

Considering such high selling rates, Chesbrough said that the downward trend is by no means alarming. "At least not yet," he said. Cox projects a total of 16.8 million sales for 2019.

Jeremy Acevedo, Edmunds' manager of industry analysis, said April appears to be a good indicator for where the year is headed. "The lesson we can take from April is you can take [March] and throw it out the window," he said.

In other words, the long anticipated sales decline appears to be here to stay.

Sales through the first four months of 2019 are down 3.0 percent to 5.3 million units.

March got a boost from fleet sales, which could continue to affect monthly sales sporadically throughout the rest of 2019, analysts said. While retail sales were generally expected to be soft, fleet sales in April were not strong enough to make up for the decline, as some analysts had anticipated.

April's "softer than expected fleet sales [are] less concerning than a pullback in consumer demand" would be, David Leiker, an analyst with Baird Equity Research, wrote in a note to clients.

Chesbrough, noting fleet sales are "always kind of a wild card," pointed to an aspect of the Trump administration's 2017 tax reform legislation that could add some fuel to that fire: Companies can accelerate depreciation allowances for business fleets. "I think it kind of snuck through because people weren't paying attention to it," he said. But accountants and tax experts have since grown privy to this portion of the relatively new tax law.

Last year, fleet deliveries in the U.S. were up 8 percent while retail sales slid 1 percent, according to Cox.

Average incentive spending through April 17 fell 8.1 percent to $3,408 per new vehicle, according J.D. Power. Truecar's ALG estimated average incentive spending to have dropped 4.2 percent to $3,488 in April. Honda, Nissan and Subaru were the only automakers to have boosted discounts, according to ALG.

Even with sales sliding, Chesbrough said he does not anticipate automakers will get too aggressive with incentive spending. He said the industry has learned its lesson after the early 2000s and has become more nimble. "The industry's going to be able to right-size itself," he said. And despite fewer new vehicles being sold, higher transaction prices have led to decent revenues at automakers, he said.

Still, with prices rising and new-vehicle inventories growing, "something has to give," Edmunds' Acevedo said.

Affordability has been cited by dealers and industry observers as a headwind for new-vehicle sales. ALG estimates the average transaction price for new cars and trucks to have risen 2.9 percent on an annual basis to $34,319 in April. Edmunds said it expects the average price of a new auto to have grown to $36,718 last month, up from $36,094 in April 2018 and $32,206 five years ago. The annual percentage rate on financed new vehicles averaged about 6.28 percent in April, vs. 5.58 percent in April 2018 and 4.40 percent five years ago, Edmunds said.

Most automakers experienced soft sales in April. General Motors' deliveries dropped an estimated 2.6 percent, and Ford Motor Co.'s sales fell 4.7 percent, according to the Automotive News Data Center. Fiat Chrysler Automobiles U.S., which had been on a tear in 2018, posted a 6.1 percent decline, marking its third straight month of decreasing sales. All FCA US brands fell with the exception of Ram, which was up 25 percent. FCA US announced last week that after midyear, it will no longer report monthly sales, joining Ford and GM in releasing only quarterly results.

Many luxury brands improved in April, including rises of 1.4 percent for BMW, 11 percent for Land Rover, 6.3 percent for Jaguar, 56 percent for Genesis and 0.4 percent for Volvo. Sales dropped 21 percent for Audi, 16 percent for Mercedes-Benz and 9.9 percent for Porsche.

Elsewhere, Toyota Motor North America volume dropped 4.4 percent on lower car sales, while deliveries edged up 0.1 percent at American Honda, 0.7 percent at Hyundai and 1.6 percent at Kia. Nissan Group reported a 9 percent jump and the Volkswagen brand's sales rose 8.7 percent, while Mazda's sales fell 15 percent.

Subaru extended its streak of year-over-year gains to 89 months as it reported a 7.7 percent increase. Acevedo said the company appears to have the right product portfolio at the right time.

In general, however, the crossover craze that companies such as Subaru may benefit from appears to have finally calmed down, Chesbrough said, as the overall new-vehicle market appears to finally be ebbing after several years of extraordinary sales.

"There's just not that many people left out there" that need a new vehicle, he said.

David Phillips contributed to this report.