US car sales fall in April for fourth month running and weakness seen lasting for months

PUBLISHED : Wednesday, 03 May, 2017, 4:35am
UPDATED : Wednesday, 03 May, 2017, 4:38am

The slump in the US auto industry is showing no signs of letting up.

Sales at all six of the biggest automakers in the US dropped again in April, with Ford and Honda posting the steepest declines -- about 7 per cent each. To make matters worse, each company’s figures fell short of what analysts had estimated, sending the industry to its fourth straight down month after a record sales year in 2016.

The April reports immediately reverberated across the stock market. Ford headed for its lowest close in more than four years, Fiat Chrysler Automobiles NV at one point plunged 5.7 per cent and General Motors fell as much as 4 per cent. The sell-off also spread to auto-parts makers and car retailers. Analysts said the grim numbers indicate the industry will need to boost discounts and cut production to address swelling inventory on dealer lots, particularly as credit tightens.

“It was a low-interest party, but lenders have pulled back,” Maryann Keller, an auto industry consultant in Stamford, Connecticut, said by phone. “They have made it more expensive for the borrower to get credit. Some people can’t get financed and for others it’s too expensive.”

The annualised pace of US auto sales, adjusted for seasonal trends, slowed to 16.9 million in April, missing analysts’ average estimate for 17.1 million. A year ago, the selling rate was 17.4 million.

“This will add to investor angst and the belief that production cuts are needed,” Joe Spak, an analyst at RBC Capital Markets, said in a report Tuesday. “This adds fuel to the fire to the thesis that higher incentive spending is needed to support demand and that even that impact is waning.”

Industry-wide deliveries have declined in each of the first three months this year and were down 1.5 per cent through March, according to researcher Autodata Corp.

The market’s slump continuing into April reinforces estimates for the US auto market’s first annual contraction since 2009, the year GM and Chrysler reorganised in bankruptcy court.

GM finished the month with about 100 days’ supply of inventory, more than the roughly 70 days the company typically likes to carry.

The largest US automaker has scheduled about 13 weeks of downtime at North American plants during the third quarter, Chief Financial Officer Chuck Stevens told analysts last week. While the bulk of the idled production is related to retooling factories to make new or redesigned sport utility vehicles and pickups, the automaker is also trimming output of the Corvette sports car at its plant in Kentucky.

Industry demand is declining even as automakers ratchet up discounts. Spending on incentives last month through April 16 reached a record for the month of US$3,499, according to J.D. Power.

“Sales look soft,” David Whiston, an auto analyst at Morningstar, said by phone. “I told clients that 2016 would be the end of growth, and it looks like just that.”