May Auto Sales: Fewer And Smaller

May sales estimates are out, and the analysts are seeing slowdown in their crystal balls. Reuters reports that its survey of leading auto analysts projects a 12.6m SAAR (Seasonally Adjusted Annual Rate) for the month, while Bloomberg is projecting a 12.1m rate. Wherever the actual number lands, it is likely to be the first month this year below a 13m SAAR, as Japanese supply interruptions as well as model changeovers lower overall supply. But, reports the WSJ [sub], there’s evidence that perceptions of undersupply are possibly keeping consumers away from showrooms as much as an actual shortage of vehicles. A Honda dealer who says he has plenty of cars for sale is quoted as saying

Traffic is down and I think it’s the media effect. People think there’s no cars and they think there’s no incentives, so they’re waiting.

And that’s not all: it turns out that May’s downbeat forecasts could have an even deeper cause…

The WSJ [sub] also spoke to TrueCar’s VP for Industry Trends and Insight, who argued that May was a “blip,” offering the following evidence:

Three key drivers of auto sales—new home starts, consumer confidence and the Dow Jones Industrial Average stock index—all had down months in May, damping consumers’ eagerness to splurge on new cars.

“The fundamentals that fuel car-buying had a negative month,” he said, adding that he believes it is “very unlikely” the sales pace will dip below the 12 million mark again this year.

Perceptive analysis, to be sure, but what about that other “fundamental that fuels car buying,” gas prices? Another Reuters piece ties rising gas prices (and inflation more generally) to weak consumer spending, noting

The high gasoline prices swallowed almost all the increase in incomes from U.S. tax cuts enacted in December.

Economists worry that stagnant incomes — which have failed to keep up with inflation — will continue to impede spending even though prices at the fuel pump are starting to fall.

So far, consumers have resorted to saving less and some are tapping into their savings to maintain spending. Incomes rose 0.4 percent last month, but disposable incomes adjusted for inflation were flat for a second straight month.

Real incomes have not grown this year and the saving rate stayed at a 2-1/2 year low of 4.9 percent in April. According to the Commerce Department’s chief economist, Mark Doms, Americans saved $82 less over the past four months.

“Consumers have dipped into savings in order to make it through this challenging environment,” said Michael Feroli, an economist at JPMorgan in New York.

“Just as consumers used savings to smooth through the energy price spike on the upside, any move to rebuild saving in the wake of easing gas prices could soften the lift to what otherwise should be a very stimulative development.”

And here we have a macro-level dilemma that could turn May’s “blip” into a longer-term phenomenon: if gas prices resume their steady climb, consumer spending will continue to be eroded away by inflation. If they continue to recede, Americans could well try to build up savings while they can. Only a sudden spike in gas prices seems likely to drive consumers back to the dealerships in large numbers, as sharp runups in gas prices tend to fuel desperate decisions. Meanwhile, cars are getting more expensive and incentives are headed towards some of their lowest levels in years.

The 2008 slide in car sales is starting to feel more like a market correction than a downturn from which we can ever expect a robust recovery… is it any wonder that Bloomberg notes we’re still trying to match that year’s then-disappointing volume? Could this kind of steady, halting, externality-constrained growth be “the new normal”? Since the move towards more efficient cars is being accompanied by improvements in pricing and incentives (and thus, profits), that might not even be the end of the world…