The inevitable peak in U.S. auto sales has arrived in 2017, and investors braced for another monthly decline last week when automakers reported July sales results, which delivered the seventh consecutive monthly decline. Though July had one fewer selling day than in the prior year, sales declined nearly 7%. Let's zoom in on Detroit's Big Three -- Ford Motor Company (F 0.66%), General Motors (GM -0.17%), and Fiat Chrysler Automobiles (FCAU) -- and compare highlights, and unfortunately some lowlights.
The Blue Oval
Ford arguably had the best sales result of Detroit automakers despite a 7.5% year-over-year total sales decline to 200,212 units. However, this result is better than it appears because the company's retail sales, which are generally healthier than fleet sales, posted a modest 1% decline to 159,492 units, while fleet sales accounted for much of the decline, posting a 26.4% drop to 40,720 units. That is a far healthier sales mix than if the declines were reversed.
The company's most important product, the F-Series full-size truck line, didn't disappoint, either. Total F-Series sales moved 5.8% higher to more than 69,000 units. But the intriguing thing within F-Series sales in July was that the Super Duty, which generally carries a higher price tag, accounted for 53% of F-Series sales, which drove the lineup's average transaction prices (ATPs) $2,500 higher to $45,000 -- the Super Duty's ATPs checked in $4,600 higher, to more than $55,000 per truck. July was merely the latest month in a long history of the F-Series increasing its sales.
Data source: Ford Motor Company. Chart by author.
Ford's F-Series weren't the only large vehicles to sell well. Ford brand SUV sales increased 2.9% compared to the prior year, and have posted record year-to-date sales through July. July's result was driven in large part by the Explorer and Escape, which posted respective year-over-year gains of 12.9% and 5.5% to 18,763 and 27,716 units.
Detroit's largest automaker
General Motors' total sales checked in 15.4% lower to 226,107 units. Unlike Ford, however, GM had already been working to reduce its fleet sales throughout the year, so this sales decline was driven by retail sales. More specifically, GM's retail sales sank 14.4% in July to 202,220 units and its fleet sales accounted for a surprisingly modest 10.6% of total sales during July -- that's less than GM's year-to-date 18.6% and a little more than half of what Ford's fleet sales accounted for during July, at 20.3%.
General Motors' Renaissance HQ in Detroit. Image source: General Motors.
Despite retail sales driving its total sales lower, General Motors wasn't shy about noting the reduced focus on fleet sales. "We have strategically decided to reduce car production rather than increase incentive spending or dump vehicles into daily rental fleets, like some of our competitors," said Kurt McNeil, GM U.S. vice president of sales operations, in a press release. "We are working hard to protect the residual values of our new products and growing quality retail and commercial sales, and July's ATPs reflect that discipline."
As industry sales plateau, more focus will be spent on inventory levels and incentive spending. GM appears to have incentives under control, but has work to do on inventory levels. GM's July incentive spending as a percentage of ATPs was 11.5%, which was more than 100 basis points below the industry average and a decline from GM's average level during 2016. On the other hand, GM's inventory was definitely higher than investors would like, with 104 days' supply at the end of July -- Ford's was a far more respectable 77 days' supply. Some of GM's inventory is in preparation for summer plant shutdowns, but it's still a factor GM needs to tackle in the coming months.
A nasty slump
Fiat Chrysler's sales dropped 10% in July to 161,477 units with both fleet and retail sales weakness to blame. FCA's retail sales declined 6% from the prior year, down to 145,391 units, and its fleet sales dropped 35% to 16,086. The story over the past year has been the slowdown of FCA's highly profitable Jeep brand.
Image source: Fiat Chrysler Automobiles.
For years leading up until the back half of 2016, it wasn't uncommon for the well-known SUV brand to post double-digit gains every month. But then things turned, and FCA's best-selling brand has now posted its eleventh straight month of declining year-over-year sales, dropping 12% to 69,351 units. FCA's other highly valuable brand, Ram, posted essentially flat sales over the prior year, and its Ram pickup sales declined by a meager 101 units down to 39,708 units. Meanwhile, the Dodge and Chrysler brands continue to struggle, with respective sales declines of 12% and 30% last month.
Industrywide, July brought investors a third consecutive month with a seasonally adjusted annual rate below 17 million units -- July's rate fell to 16.78 million -- and, again, the seventh consecutive monthly decline in sales. While sales still remain at very healthy levels, it's clear that automakers are looking to cut back on fleet sales, correct inventory where necessary, and contain incentives. These are all stories very much in progress throughout the rest of the year, and will dictate automakers' earnings going forward. If automakers fail to keep incentives and inventories in check, the industry risks another price war, which would quickly erode bottom-line profits. No investor wants that, and it would make a plateauing industry even more treacherous to navigate in the coming years. Let's hope automakers have learned from their past mistakes.
