Slump in Auto Sales Extends to 7th Month -- WSJ

By Christina Rogers and Mike Colias Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 2, 2017).

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Auto sales slid in July, the seventh month of a slowdown marked by manufacturers' reluctance to sell discounted cars through leases and car-rental chains.

Sales fell 7% last month, compared with a year earlier, according to Autodata Corp. Research firm J.D. Power said manufacturers typically pull back on sales incentives after the July Fourth holiday, "but this year elevated inventory levels coupled with the sales slowdown, have compelled them to maintain aggressive discounts throughout July."

Detroit's car companies felt the brunt of the decline, with General Motors Co. reporting a 15% sales drop in July compared with the same period a year earlier. Sales at Ford Motor Co. and Fiat Chrysler Automobiles NV slid by 7.4% and 10%, respectively. All three were below analysts' expectations.

Despite falling sales, the three companies aimed to protect their bottom lines by trimming incentives for car leases. Auto makers have banked on such discounts to keep consumers' monthly payments low as sticker prices soared because of a market shift to heavier trucks and sport-utility vehicles, and technology aimed at making cars smarter, safer and more efficient.

Manufacturers in July also edged away from discounted, less-profitable rental-car sales to companies such as Hertz and Enterprise.

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The moves reinforce a newfound discipline for domestic manufacturers that have ridden a seven-year growth streak since GM and Chrysler sought bankruptcy protection in 2009. The Detroit 3 reported tens of billions in profits during that span, bolstered by falling gasoline prices and surging demand for profit-rich trucks and SUVs.

Overall industry demand softened over the first seven months of 2017, falling about 3% in June, according to Autodata. The development ushers in an expected plateau for auto sales, an important driver for the broader U.S. economy.

Sales to government fleets, commercial buyers and rental-car companies have fallen 7.8% in that period, according to J.D. Power, while sales to retail customers at dealerships fell less than 1%.

Leasing accounted for 31% of all retail sales in the first half of 2017, falling slightly from last year's record of 32%, according to Edmunds.com. That number dropped to 29% in July, the lowest mark of the year. The declines appear modest, but represent a potential tipping point.

"For a long time, we were all wondering where the ceiling was for leasing," said Jessica Caldwell, an analyst for Edmunds.com. "Now, it has been hit."

The U.S. auto market, which topped a record 17.5 million units in 2016, has grown seven consecutive years. Analysts expect that growth streak to end in 2017 as consumers and companies need fewer vehicles following a boom in sales during recent years.

The pressure on the leasing business comes as an increasing number of leased vehicles return to the market, causing resale values to tumble. That has prompted big auto lenders like Ally Financial Inc. to cut back on leasing.

Some auto makers and their lending arms also are dialing back leasing to avoid being stuck with a glut of vehicles at depressed prices once their lease period ends, typically after three years. They are also doing so after incurring higher costs in recent months to keep lease deals attractive.

The average spending on lease incentives climbed to $4,445 a vehicle in first half of 2017, up from $3,722 for the same January-to-June period a year ago, according to Edmunds.com.

"It does cost us more to hit those payment points" than it did three years ago, said Ford U.S. sales chief Mark LaNeve. Ford is increasing monthly lease payments on certain models, including the high-volume Fusion sedan and Escape crossover, to help counter the fall in used-car values.

Ford's financing arm began pulling back on leasing last year, after reporting red ink tied to the business. The move limits exposure to falling used-car prices but also dents new-vehicle sales.

GM plans to reduce leasing to between 25% and 0% of its sales volume, from 31% in the second quarter finance, chief Chuck Stevens said during a conference call with analysts last week.

Write to Christina Rogers at christina.rogers@wsj.com and Mike Colias at Mike.Colias@wsj.com

(END) Dow Jones Newswires

August 02, 2017 02:47 ET (06:47 GMT)