US Auto Sales Pinched From Higher Interest Rates and Lower Consumer Confidence

The latest numbers show that US auto sales rose a little in October, with growth slowed from higher interest rates and higher vehicle prices.  But this growth may come to an end soon, as Ford Motor Co warns that consumer confidence is weaker, which could mean sales volumes will remain only moderate through the rest of the year.

Indeed, the #2 US automaker reported this week, a 5 percent decline in pickup truck sales.  Overall sales, however, also fell—3.9 percent—hitting 192,616 units in the month of October due to lower demand for passenger cars. Ford said that it seems consumers are still mostly confident about national economic conditions, though that confidence did slip a little in September.  According to data from the University of Michigan’s consumer sentiment index, payments have increased to nearly matching the rise in interest rates.

Ford also added that the index indicates that those who believe September is a good time to buy a car fell 8 points—to 59 percent—over concerns of higher vehicle prices and higher interest rates.  Surely that makes sense since Ford’s transaction prices rose $1,400 in October from the same time last year; which is notably higher than the $330 rise across the industry as a whole.

Ford also comments that gross stock grew from 79 days last year to 87 days with dealers anticipating higher vehicle demand in the final two months of the year.  As a reference, the auto industry holds that 60 to 65 inventory days is a healthy market.

On the other hand, General Motors had a solid third quarter and stock was up as much as 8.5 percent in early trading on Wednesday. The boost came largely after the car company announced a 25 percent increase to third-quarter operating profit. Third-quarter earnings per share reached $1.75, which is notably better than the $2.03 per share net loss in Q3 of last year.  If you recall, the company took a $2.3 billion charge because of its Opel/Vauxhall sale. Thus, GM shows an adjusted Q3 EBIT of 25 percent growth, to $3.15 billion, which is also much higher than the $2.52 billion from last year.

Overall, though, car sales in the US fell about 2 percent last year, form an industry record of 17.55 million units (in 2016). The numbers are expected to continue dropping, of course, with higher interest rates discouraging consumers; and more late-model used cars are returning to dealer lots, as well.

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