US auto sales drop 3.2% in March on higher interest rates and low incentives
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Auto sales declined in the U.S. market during March primarily due to higher interest rates and relatively low incentives, according to industry analysts.
Figures from AutoNews Data Center show that global automakers sold 1,605,715 light vehicles last month, which represents a 3.1% drop. First quarter sales totaled 3,989,468 units, a 3.2% decline compared to the same three-month period of 2018.
But not all March-related data was negative, the seasonally adjusted, annualized rate (SAAR) of sales came in at 17.42 million, a significant increase from February's 16.61 million rate and even higher than the 17.33-million pace recorded in March 2018, sparkling optimism that the barrier of 17 million cars sold can be surpassed at the end of the year, as has been happening since 2014.
“The weakness in auto sales so far this year has been on the retail side. Incentives remain relatively low and auto loan rates have not improved, so consumers haven’t had a compelling reason to buy. The pool of people who can afford to buy a new vehicle is being reduced by higher prices and affordability concerns,” said Jonathan Smoke, Cox Automotive’s chief economist in a note.
Meanwhile, Edmunds stated that the average interest rate on a new vehicle loan has hit its highest level in a decade. According to its shopping experts, the annual percentage rate (APR) on new financed vehicles is expected to average 6.36% in March, compared to 5.66% last year and 4.44% five years ago.
“Things just keep getting tougher for new-car shoppers,” said Jessica Caldwell, executive director of industry analysis. “Interest rates have crept up every month so far this year, and new vehicle prices continue to hover near record highs. We're on the cusp of what could be a pretty dramatic shift in the market, simply because a big chunk of buyers is getting priced out.”
Edmunds experts note that in the first quarter of this year, an increasing number of car buyers are being pushed into higher financing brackets. Edmunds data reveals that shoppers receiving interest rates of 10% or higher constituted 14.1% of the market in March, the highest level seen since February 2008.
“It's pretty alarming to see that a sizable segment of new-car shoppers are financing cars at rates that we'd normally associate with used vehicle purchases,” said Caldwell.
The lack of incentives for car shoppers is also cause of concern. The valuation analysts at Kelley Blue Book reported the estimated average transaction price for a light vehicle in the United States was US$36,733 in March 2019, up 2.3% from same month of 2018.
“While a 2% increase doesn't sound like much, factoring in higher interest rates this year and tighter incentives means average monthly payments are up about US$30 from a year ago – an increase closer to 6%. This sharp increase is likely contributing to the slower sales pace in the first quarter. We will have to see if automakers respond with greater incentives later in the year, if sluggish sales continue,” said Tim Fleming, analyst for Kelley Blue Book.
The Detroit 3 automakers all posted sales declines being General Motors who reported the steepest drop, one of 8.3% on sales of 271,777 units. Meanwhile, FCA sales fell 7.2% to 201,232 vehicles and Ford saw an estimated 5.5% on deliveries of 220,848 cars and light trucks.
Following GM’s steps, Ford is now posting its sales figures on a quarterly basis. Its first quarter 2019 U.S. sales results will be released next Thursday.
Among Japanese automakers Mazda saw the sharpest decline, of 19.1% on sales of 26,934 units, due in part to the transition for the next-gen Mazda3. Meanwhile, Toyota sales fell 3.5% to 214,947 vehicles.
On the other hand, Honda, Subaru and Mitsubishi, all three posted gains of 4.3%, 6% and 36.9%.
Volkswagen sales hiked 14% to 37,09 vehicles while Hyundai and its sister brand Kia saw gains of 1.8% and 10.2% respectively.
In the luxury car market, BMW posted a marginal gain of 0.4% on sales of 36,107 vehicles including its Mini and Rolls-Royce brands. Sales of the BMW brand increased 2.9% but the overall result was affected by a 16.8% drop in its Mini division.
Mercedes Benz posted a 2.7% drop on deliveries of 30,627 vehicles including the Smart brand, Audi sales increased 1.1% to 20,302 units and Jaguar Land Rover reported a 7.5% decline on sales of 13,171 cars and SUVs.
The United States represents the main destination for Mexico auto exports. During the first two months of 2019, automakers exported 403,172 Mexico-made vehicles to the U.S. market, representing a 7.6% increase and a 78.5% share of total exports.