News from Notch Consulting, Inc.

The Associated Press reports that the raft of gloomy economic news may be starting to hurt U.S. auto sales.

Industry analysts and dealers said this week that sales during the first half of July slowed a bit from the robust pace in June. But they still were expected to be better than July of 2011.

For the first half of the year, sales of cars and trucks ran at an annual rate of 14.3 million, the best pace in 5 years. Car buyers bought everything from compacts to big pickups, making the auto industry a bright spot in the economy. The only hiccup came in May, when sales slipped to a 13.8 million annual rate as the stock market plunged. Buyers returned in June to drive sales back up to a 14.1 million rate.

Jeff Schuster was expecting sales to tail off in the early part of July, partly because promotions leading up to Independence Day may have pulled sales ahead into June. The senior vice president of forecasting at the LMC Automotive consulting firm in Troy, Mich. predicts July sales likely will come in at an annual rate below 13.8 million.

“With the weaker consumer confidence, the auto industry could be in for a roller-coaster second half, but it isn’t time to sound the alarm yet,” said Schuster, who is sticking with his forecast of 14.5 million sales for the full year.
If Schuster’s July forecast holds, sales would eclipse the 12.2 million rate of last July. Sales have come a long way from the doldrums of 2009, when only 10.4 million cars and trucks sold during the financial crisis. The recent peak for sales was 2005, at 17 million.

Dealers surveyed by Citi Investment Research analyst Itay Michaeli also reported a slow start to July. But Michaeli noted that auto sales normally are stronger in the final two weeks of a month as discounts kick in and dealers try to make monthly goals.

Not all analysts are predicting a big sales drop for July, though. Edmunds.com predicts an annual rate of 14 million, and Wardsauto.com is at 14.1 million. Ward’s analyst John Sousanis said he expects factors that fueled strong sales during the first half to continue. He said owners of car fleets, like governments and rental car companies, need to replace aging vehicles the same way individual owners do.

Car sales in Europe have declined steadily since October 2011 due to lower consumer confidence brought on by the debt crisis and generally weaker economic results. The auto industry has responded with discounts and incentives, but these efforts have not overcome the industry’s substantial headwinds.

According to ACEA (the European Automobile Manufacturers’ Association), new passenger car registrations declined by 2.8% in June in the EU 27 countries, continuing the downward trend commenced in October last year. In total, 1,201,578 new cars were registered in June. New car registrations totaled 6,644,829 units for the first half of the year, down 6.8% compared to the first six months of 2011.

June results were diverse across the EU 27 countries. Germany (+2.9%) and the UK (+3.5%) posted growth, while Spain (-12.1%) and Italy (-24.4%) contracted. The French market remained stable (-0.6%). From January to June, Germany (+0.7%) and the UK (+2.7%), the two largest markets, performed better than in the first six months of last year. Downturn prevailed in Spain (-8.2%), France (-14.4%) and Italy (-19.7%).