Automotive Insights: September U.S. Sales Weaken as Inventories Rise and Production Remains Flat
by Eric Boreczky
September U.S. Light-Vehicle Sales Slide But SAAR Remains Healthy
2019 U.S. light-vehicle sales have declined for the last six months and the impact on the industry had been relatively small through August. This is the fifth time in the past seven months that auto sales surpassed the 17.0 million unit SAAR level. In September Asian and Detroit Three automakers recorded double-digit sales declines with robust seasonally adjusted annual sales rate (SAAR) of 17.16 million. Overall automaker September sales fell 12% based on sales estimates for General Motors (down ~10%) , Ford (down ~12%), and FCA (down ~10%). Actual quarterly sales for GM rose 6.3% with 738,638 deliveries; Ford quarterly sales dropped 4.9% to 580,251 vehicles; and FCA reported flat sales of 565,045 vehicles. Asian automakers also felt sales drops—Nissan plunged 18%; Toyota down 17%; Honda down ~14%; Hyuadai slipped 8.8%; and even Subaru’s 93 consecutive monthly sales streak ended with 9.4% drop. September cars sales were estimated at 338,831 vehicles (down 22%) and trucks sales were 930,040 (down 7.7%). J.D. Power reported that average incentive spending per unit in September is estimated at $4,208, up from $4,014 last year, while ALG estimates average discounts rose 4.9% to $3,975 last month from September 2018. The average interest rate for a new-vehicle loan fell for the sixth month in a row and stayed under 6 percent for the third month in a row in September, Edmunds reported. Sources: Automotive News, Reuters, IHS
U.S. September Light-Vehicle Inventory Daily Rate Climbs
U.S. auto inventories were an estimated 3,728,200 cars and light trucks with a 68-day supply. The figure was about 20,000 vehicles lower than it was at the same point a year ago, but still about 7,500 higher than at the start of September. The number of unsold cars continues to drop. Over 100,000 vehicles have been shed since the beginning of July to 902,900, a 61-day supply, while the number of unsold light trucks climbed to 2,825,300, a 70-day supply. Cars represented about 24% of the vehicles in inventory across the U.S. and almost 27% of industry sales in September. Car inventories stood at 61-days up from 59 in the prior month; truck inventories rose from 65-days to 70-days and overall inventories had an estimated increase from 63 days to 68 days.
Even with the lost production, GM was estimated to have a nearly 80-day supply. Volkswagen and Mitsubishi Motors were the only two automakers with more than a 100-day supply of inventory, while Subaru continue with industries leanest inventories with 19-days. Sources: Automotive News, Wards, IHS
2019 September North America Auto Production
North American September production declined 2.7% YOY or 36,773 units, with 1.33 million units produced for a SAAR of 16.19 million units. The estimated impact to GM production regarding the GM-UAW strike is an estimated loss of 397,278 units with production recovery to carry over well into 2020. Production in 2019 is forecasted by IHS to decline 4.1%, or 688,846 units to 16.27 million units with the GM UAW strike being a significant contributor to the already slowing demand. Source: IHS, Automotive News
EV’s Impact on Domestic Auto Manufacturers
The United Auto Workers and General Motors are coming to terms with a 40-day strike with the focus over jobs and benefits. The looming concern is electric vehicles when this contract is concluded. Plug-in cars have fewer parts and require less labor to build and will create major problems for the union. The GM Orion Assembly plant in Lake Orion that builds the Chevrolet Bolt EV. Ford and FCA are rolling out their own battery-powered models to market in the coming years and could face a similar fate if they're unable to quell the UAW's concerns that widespread adoption of EVs endangers the employment of 35,000 union members.
EVs are a small but a growing market, with zero-emission autos having about 2% of global production. AlixPartners (auto consulting firm) found that it took 40% fewer labor hours to assemble an electric motor and battery than a traditional internal-combustion engine and transmission. Ford estimates electric cars will require 30% fewer hours of labor per vehicle and 50% less factory floor space. GM shut down the Warren transmission plant, affecting more than 260 workers as part of a larger restructuring. That may foreshadow other closures as EV production ramps up. The supply chain is where the job risk is greatest, especially for workers employed making engines, transmissions, and subcomponents that aren't needed in EVs.
It is estimated that 64% of the fully electric Bolt model's content is made in Korea, including the battery. Batteries, the single most expensive part of an electric vehicle, are almost exclusively manufactured overseas and mostly by companies relatively new to the automotive powertrain. Korean LG Chem Ltd. makes cells in South Korea and assembles packs for GM and Fiat Chrysler at a nonunion plant in West Michigan with a starting wage for technicians of $16 an hour. That's close to what Ford pays its entry-level temporary workers, but far below the $28–$30 an hour for legacy UAW employees. Temporary workers at Ford's engine and transmission plants also can move up into legacy wage brackets, which isn't the case at LG's facility.
IHS Markit predicts the introduction of new gas-powered engine families will drop to zero in 2022, from nearly 70 in 2011, as automakers shift spending to electric propulsion. The market for a whole range of parts used in internal combustion vehicles (axles, mufflers, fuel tanks, and transmissions) will shrink in a range from 6% to 20% by 2025, according to Deloitte Consulting. Sources: Automotive News, Reuters, IHS, Company Press Releases