Poor August sales bring bigger profits to carmakers, report says

Article by Christian A., on September 7, 2010

US auto sales fell by 21% in August, its lowest level for the month in almost 30 years. The drop is more dismal because of the comparison with August 2009, when sales had risen steeply due to the cash for clunkers program.

Since inventories are low, automakers didn’t have to offer high incentives to clear dealer lots for the upcoming 2011 models. The Automotive News Data Center said that the August's seasonally adjusted annualized sales rate fell below 11 million units for the first time since February, to 10.8 million. However, most analysts anticipate sales to go back to the low- to mid-11 million range.

IHS Automotive’s fourth-quarter production forecast remained the same at 2.8 million, a 3% increase from the previous year. But the big surprise is related to manufacturer profits, which improved largely even as sales fell to near the industry's lowest levels in three decades.

The domestic carmakers, which lost billions of dollars when US sales came to 16 million or more a year, are now profiting at an annual industry sales rate of about 11 million.

Automakers are able to do this as consumers pay higher transaction prices and may buy more vehicles than they preferred to do a year ago.

Sales of high-margin SUVs, crossovers and pickups are growing quicker than car sales (especially small cars). Furthermore, automakers’ new habits of cutting overhead and curbing overproduction have resulted to tighter inventories, smaller incentives and higher profit margins.

Jeff Schuster, executive director of global forecasting at J.D. Power and Associates, describes it as “almost like a symphony coming together,” which enables the industry to be profitable even with lower volumes. [via autonews - sub. required]

Topics: sales, united states

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