The auto industry saw a lackluster start to the spring season as car sales dropped to an annualized 17.15 million units in April compared with 17.04 million units a year ago, according to Autodata.
Of the six major American and Japanese automakers, Nissan Motor (NSANY – Free Report) led the slump, plunging 28%. Honda (HMC – Free Report) , Ford Motors (F – Free Report) and Toyota (TM – Free Report) saw declines of 9%, 4.7% and 4.7%, respectively, while Fiat Chrysler (FCAU – Free Report) auto sales rose 5%. Notably, General Motors (GM – Free Report) will no longer provide monthly sales data.
The dismal performance came on the heels of waning consumer demand after a long boom and intensified competition, which has led to more car production, resulting in increased inventory.
Challenges Ahead
Consumers have long been shifting from traditional passenger cars in favor of larger and more comfortable pickup trucks, SUVs and crossovers. But the number of new models is now growing faster than demand, threatening the fat profits that automakers have enjoyed over the past several years. Additionally, higher rates have made financing of new vehicles expensive.
Further, Trump’s steel and aluminum tariffs may deal a big blow to the industry as these would increase the cost of auto production. Notably, the auto sector accounted for 26% of demand for steel in the United States in 2017, lagging the construction industry, which accounted for 40%, according to data provider Statista.
Weak earnings expectation is an added challenge as the sector is expected to post earnings decline of 2.5% for this year, following earnings growth of 2.9% last year.
Any Bright Spot?
A strong economy, low unemployment, increasing consumer confidence, higher spending, fuel-efficient and technologically enriched vehicles, and still-low financing rates and gasoline prices will fuel the industry. Though the tax reform will encourage rate hikes, it will provide a lift to U.S. car sales.
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