Coverage: New car sales declined in April, causing concern

New car sales for the auto industry’s biggest company all declined in April, leading to concerns that a seven-year rise in sales may be ending.

Russ Mitchell of the Los Angeles Times had the news:

The April figures aren’t an aberration. The car industry’s year-to-date sales are down as well.

If the trend continues, analysts will have to revise down their predictions that about 17.1 million vehicles will be sold in 2017 and begin asking whether the new-car market is on a steeper slide than anticipated.

They aren’t quite ready yet to make that call.

“We’re still seeing a high level of sales,” said Michelle Krebs, senior analyst at AutoTrader. Since the recession ended, rising employment and low gasoline prices have kept vehicle sales high.

In 2016, automakers sold 17.5 million new cars and light trucks. This year, analysts expect fewer sales, but most envision more of a plateau, not the kind of drop-off that could hurt the economy.

The April numbers are clouding the prognostications.

Mark Wakefield, managing partner at AlixPartners, said the consulting firm is “bucking the idea” of a long plateau, anticipating a cyclical decline.

Brent Snavely of the Detroit Free Press reported that some automakers are offering incentives to buyers:

Slowing industry sales will present challenges for automakers that have already resorted to ratcheting up incentives as they try to keep a lid on inventory. But it could be good news for consumers looking for a bargain on a new car or truck heading into the summer.

In April, the average incentive for a new vehicle was above $3,000, or 15% higher than last April, Caldwell said.

On the other hand, the average interest rate on new car loans was more than 5% for the second month in a row for only the second time since 2010. Higher interest rates drive up monthly car payments — one of the key factors consumers weigh when they decide which new vehicle they can afford.

For automakers, any decision to pile on incentives threatens profits. But most analysts expect the pace of auto sales will remain robust even as the pace recedes from historically high levels, giving automakers who manage the challenges correctly opportunities to thrive.

Aparna Narayanan of the Investor’s Business Daily reported that higher interest rates aren’t helping:

And after nearly a decade at ultralow levels, rising interest rates are a further drag on sales. The average interest rate for new car loans rose above 5% for the second month in a row in April, which has not happened since early 2010, according to the car shopping and information site.

“Inventory buildup is a top concern of automakers and all eyes are on whether cuts in production are enough to offset expected dips in sales,” said Jessica Caldwell, executive director of industry analysis at Edmunds, in an email.

Industrywide, U.S. sales came in at an annual rate of 16.88 million vehicles, according to Autodata, below views for about 17.1 million. It’s the second straight month of sub-17 million after March’s 16.5 million and more evidence that domestic demand for cars and trucks is wilting after seven years of growth.

Toyota Motor, Honda Motor, and Nissan also saw worse-than-expected drops, as the auto sales slowdown extended to a fourth consecutive month for the first time since 2009.

Average prices for vehicles have been rising, in part due to the shift to more expensive and profitable trucks, crossover utility vehicles and SUVs amid cheap gas prices. But automakers have had to boost discounts and incentives to move the metal, denting their profits, and April’s figures suggest that they have to take further action to entice buyers.