Good news: Tuesday's new-vehicle sales reports showed that U.S. auto sales rose 6% in March.
That may not seem like huge growth. But after a 3% decline in January and a flat result in February, any sign of momentum is a good one for the industry.
Coming after many months of strong growth, the sluggish results earlier this year raised a troubling question in many investors' minds: Was it just the weather keeping buyers away from car dealers, or was the economic tide starting to turn for the worse?
Several automakers made a point of saying on Tuesday that the pace of sales improved significantly in late March -- a sign that maybe it really was "just the weather."
Ford (NYSE:F) stock jumped over 4% on Tuesday as investors' concerns about slow sales started to ease.
But as more data about March's sales numbers emerges, it's starting to look like there might be some reasons to worry after all.
Was it really just the weather, or was it something else?
The industry's sales pace came in well above most analysts' forecasts, something that Ford executives attributed to the very strong sales pace they saw on the last weekend in March. (Most analysts released their forecasts before that weekend.)
Clearly there was a significant increase in the pace of sales over the second half of March. And just as clearly, that was when harsh winter conditions began to recede in cold-weather parts of the U.S.
But was there another dynamic at work? It turns out several automakers boosted their spending on incentives as March unfolded. Analysts at TrueCar.com put the average incentive spending in March at almost $2,800 per vehicle, up about 8% from year-ago levels.
Ford's spending on its F-Series pickups was roughly flat, at around $4,000 per truck. But Ford officials acknowledged that they had increased incentives on the midsize Fusion sedan by almost $800 over year-ago levels -- though they insisted the Fusion's average transaction price of about $23,500 in March was still well ahead of that on the Fusion's arch-rival, Toyota's (NYSE:TM) Camry.
And Ford was hardly the biggest spender. TrueCar.com estimates that Toyota's average incentive spending was up 18.7% from March of last year, as the company moved to boost flagging Camry sales. Honda (NYSE:HMC) and Hyundai (OTC:HYMTF) also spent far more than they had a year ago.
Even General Motors (NYSE:GM), which has sharply cut back its incentive spending in a bid to boost profits, increased its payouts by nearly 6% from February to March as it sought to build momentum for the redesigned 2014 Chevy Silverado pickup.
Chrysler spends big to move pickups
But it was Chrysler -- which posted tremendous sales gains for several key products -- that really broke the bank in March, at least in one key market segment.
According to TrueCar.com's estimates, Chrysler's overall average incentive spending wasn't particularly out of line -- a little higher than Ford's, a little less than GM's.
Chrysler may have kept its discounts on some models modest. But the incentives on its Ram pickups were another story. Bloomberg reported on Tuesday that J.D. Power estimates put Chrysler's average spending on incentives for the Ram 1500 at $5,598 per truck -- 35% more than Ford's spending on the F-150, and 46% more than GM's spending on the Silverado.
The strategy worked: Ram sales rose 26% in March. But at what cost to Chrysler's bottom line?
All of this raises a tough question
Was it just the arrival of spring weather that boosted sales in March, or was it the incentives?
On the one hand, it's fair to argue that the industry's boost in incentives spending in March was justified. Slow sales in the first two months of 2014 had led to ballooning inventories. Prudent use of incentives is a completely reasonable way to bring inventories back into line.
On the other hand, big boosts in incentive spending are exactly what we'd expect to see if consumer demand for new vehicles was starting to slow down.
For the last couple of years, nearly all of the automakers have been content to prioritize profits over incremental market-share gains. Nearly all of the automakers were posting good sales gains month after month as the U.S. economy continued its slow recovery, so why mess with a good thing?
But that changed in March.
So was it just the weather, or was it something more?
We'll see how April goes. Stay tuned.