Auto Makers Break Skid -- WSJ

By Mike Colias and Adrienne Roberts Features Dow Jones Newswires

Discounting, demand following hurricane in Texas drive strong monthly performance

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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 (October 4, 2017).

Auto sales hit their briskest monthly pace for the year, as Labor Day discounts, higher fleet sales and hurricane-related replacements restored momentum heading into the final months of the 2017.

Car companies have weathered a string of monthly declines this year, a sign demand is plateauing following seven years of increases. Sales of trucks and sport utilities remain strong amid low gasoline prices, but a weaker market for family sedans and compact cars has prompted slowdowns at certain factories.

Buyers flocked to showrooms in September, however, with vehicle sales rising 6.1% compared with the same period a year earlier, according to Autodata Corp. The tally, which benefited from one more selling day than in September 2016, represented one of the strongest September sales performances on record.

Joseph Spak, an RBC Capital Markets analyst, said the month's strength follows a pattern set in recent years in which the car market picked up in the second half of the year. WardsAuto.com on Tuesday forecast a strong October "as (more) consumers replace vehicles lost due to natural disasters and auto makers push sales to clear out excess" inventory from the prior model year.

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Nearly all major auto makers posted considerable gains, sending the closely watched seasonally adjusted annual sales rate to 18.6 million, Autodata said, zipping past analysts' 17.5 million estimate and last September's rate of 17.7 million.

General Motors Co. sales rose 12% last month compared with a year earlier to 279,397 vehicles as sales to fleet buyers rose and truck demand boomed. Ford Motor Co., also reliant on higher fleet and truck deliveries, said sales rose 9% to 221,643 vehicles, while Toyota Motor Corp.'s sales surged 15% to 226,632 on higher demand for compact SUVs and its redesigned flagship Camry sedan.

Fiat Chrysler Automobiles NV sales dropped 10% to 174,266, hurt by a planned reduction in sales to rental-car companies. Sales rose 7% for Honda Motor Co. and 9.5% for Nissan Motor Co.

Although industry sales are all but certain to fall short of last year's record 17.55 million, auto makers hope a strong fourth quarter will signal the market is stabilizing at a healthy rate above 17 million annual sales. Research firm IHS Markit expects a 3% decline this year followed by relatively flat sales in 2018.

While auto makers cited replacement demand for the hundreds of thousands of vehicles lost to flooding in metro Houston, heftier discounts also lifted September results. Incentives averaged $4,048 per vehicle last month, a record for any month, according to research firm J.D. Power.

Thomas King, an analyst at J.D. Power, said dealers have higher inventory levels than usual, and are carrying a much higher mix of 2017 model-year vehicles than is typical for September. Auto makers are offering steep discounts on these vehicles as a way to move old inventory off dealer lots and boost sales.

"Consumers can get great deals," Mr. King said.

Higher discount spending is at least partially offset by the push to sell more pickups and SUVs, which carry better profit margins than passenger cars. Light trucks, including crossover wagons and vans, accounted for 65% of overall sales in September, up from 61% a year earlier, J.D. Power says.

Buyers looking to replace storm-totaled vehicles should continue to boost sales, analysts predicted. An estimated 600,000 vehicles will need to be replaced in Texas and Florida, said Jonathan Smoke, an economist at the research firm Cox Automotive. The main sales increase following a hurricane typically occurs during the first two months of recovery.

Nissan has started to see an increase in the Houston market. Judy Wheeler, Nissan's U.S. sales chief, said sales were up 11% in the central region, which includes Texas, although she noted sales were up across the region, not just in the Houston area.

"We were prepared and then as customers came into dealerships, we were able to satisfy requests to get them into new vehicles immediately," Ms. Wheeler said.

She said the day after Hurricane Harvey ended, Nissan was moving vehicles into holding lots in Texas so dealers would be in a good position with inventory.

Mitchell Dale's Ford dealership about 25 miles south of Houston closed for a week after Hurricane Harvey hit in late August, flooding hundreds of vehicles on his lot. It reopened Sept. 7 and sold 380 new vehicles in three weeks -- more than double its monthly average and a record for the 70-year-old dealership.

"The demand has been just incredible," Mr. Dale said.

Ford sales chief Mark LaNeve said an uptick in metro-Houston sales boosted its overall tally by about 5,000 vehicles, accounting for nearly a quarter of its growth for the month. Sales in Florida were hurt by dealership closures during September from Hurricane Irma but should snap back in coming weeks, he said.

Write to Mike Colias at Mike.Colias@wsj.com and Adrienne Roberts at Adrienne.Roberts@wsj.com

(END) Dow Jones Newswires

October 04, 2017 02:47 ET (06:47 GMT)