Automobile sales fell in June and reasons behind the slide are varied. Detroit automakers were not dumping unsold cars to rental agencies and sales to other fleets are down as well. Buyers are shying away from higher prices and those who are buying are going for SUVs with long loans – slowing down the timetable for a new car purchase.
There doesn’t seem to be consensus around which of the various “causes” is most important or more influential. More than likely the net drop in sales is due to a combination of all factors, perhaps in equal measure.
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Flat Sales Tied To Fewer Fleet Deliveries
The big 3 in Detroit, General Motors Co. (NYSE:GMD), Ford Motor Co. (NYSE:FD) and Fiat Chrysler Automobiles (NYSE: FCAU) all reported steep sales drops in June compared with the prior year. Part of the reason has to do with lower retail demand but it is noteworthy that all 3 automakers also reported a significant drop in sales to daily rental companies.
To wit, sales to Enterprise Rent-A-Car and Hertz Global Holdings Inc. (NYSE:HRIC) have long been a way for automakers to keep workers busy, even when dealers were not selling cars. To the degree the falloff comes from automakers themselves, it may have to do with a more disciplined approach and desire to avoid losses.
While sales through dealers fell about 2% over the first 6 months of 2017, fleet sales – including not only rental-car agencies but also government fleets and commercial buyers were off 7.8% according to J.D. Power.
SUV Sales Soar
Thanks to low gas prices and available vehicles with loads of safety gear and connectivity features, consumers are turning to pricy SUVs and away from small cars and sedans. This has resulted in pressure on buyers in the form of higher payments and longer loans.
According to Edmunds.com, the average monthly payment on a car or truck is now more than $500. Car loans were averaging 69.3 months in June which translates to payoffs that take almost 6 years for most buyers.
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Impact On The Overall Economy
In the past when auto sales weakened it was seen as a prelude to a contracting economy. With unemployment low and wages going up, such may not be the case this time – especially if consumers shift their potential car-buying dollars to other goods and services.
Another important factor is today’s lower gasoline prices. Such was not the case in the past when lower automobile sales led to economic contraction. Generally speaking, most analysts believe consumers still have the ability and desire to spend – just not on cars.