Barclays Sees September Auto Sales Are 'Solid' But Of 'Weaker Quality'

The Numbers

Barclays auto and auto parts analyst Brian Johnson estimates light vehicle SAAR of 17.6 million, down 0.5 million from August. The number translates to a year-over-year daily sales rate and headline decline of 1.5 percent. Since the number of selling days in September 2015 and 2016 are same, the analyst noted that the percentage difference is equal to headline changes.

Estimates Trimmed om Weak Quality, Reduced Volume Expectations

However, Barclays noted that its SAAR estimate for September is ahead of both the ingoing trailing 6- and 12- month averages. The firm lowered its U.S. volumes forecast for 2016 to 17.3 million units from 17.6 million units and that for 2017 to $16.7 million units from $17.5 million units.

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The tempered outlook, according to the analyst, is due to the weaker quality of the SAAR in recent months despite vibrant U.S. consumer outlook and availability of new car financing. Citing the commitment by the OEMs to maintain pricing discipline just as in early 2000s, the firm expects weaker volumes ahead.

Some Big Months A Possibility

However, Barclays did not rule out some big months that might come at the expense of quality and said its September estimates portends to such a month, high on numbers but weak on quality. To prove its argument, the firm noted that mid-month incentives as a percentage of average transaction price, ATP, rose to 12.8 percent, the highest since 2009. The firm also waits on word for whether there has been a recovery in the industry retail sales, which was at a below-average SAAR of 13.1 million in August.

Incentive Versus ATPs For Vehicle Types

• Barclays noted that light trucks experienced higher incentives as a percentage of ATP in September amid competitive pressure.
• However, large pick-ups are seeing higher ATPs. Incentives are up 12.5 percent year-over-year, with Fiat Chrysler Automobiles NV FCAU leading the incentive payment, according to the firm. That said, the ATPs were also higher, especially for General Motors Company GM and Ford Motor CompanyF.
• Mid-size pick-ups saw a 3 percent increase in ATPs, while incentives were also higher.
• In large SUVs and crossover, incentives rose sharply but ATPs were weaker. Barclays noted that General Motors, active in the large SUVs space, saw a 4.3 percent drop in ATPs and a sharp rise in incentives. The crossover space saw a 3 percent drop in ATPs and a 30 percent increase in incentives, with Honda Motor Co Ltd (ADR) HM suffering the most due to the development.

In the pre-market, Ford shares were down 0.42 percent at $12.02 and the General Motors shares were up 0.41 percent at $31.61, while Fiat Chrysler was down 1.30 percent at $6.06.

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