Strong Holiday Weekend Needed to Eclipse Sales from Last May

Analysts warning that auto sales are flattening out.

by on May.20, 2016

Ford's SUV sales in April were red hot with the Explorer up 13%. They'll need a repeat performance in May to keep sales predictions on track for 2016.

Automakers are counting on strong new-vehicle sales over the Memorial Day holiday weekend to give May sales the boost needed for a moderate increase over 2015 results, according to a monthly sales forecast developed jointly by J.D. Power and LMC Automotive.

New-vehicle retail sales in May are expected to increase by a modest 2% from a year ago on a selling-day adjusted basis, but the actual sales totals will drop year over year, according to the forecast.

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The final figures for the month will depend on the Memorial Day weekend, which historically is one of the best sales weekends of the year at car dealerships across the country, Power’s analysts noted. However, there are two fewer selling days than there were in 2015 when strong sales in May led to strong sales through the summer and fall.

“The Memorial Day weekend is one of the busiest car-buying periods of the year, and we expect it to account for 19% of the month’s retail sales,” noted Deirdre Borrego, senior vice president and general manager of automotive data and analytics at J.D. Power.

“While month-to-date sales indicate we will see a slight increase compared with May 2015, a key variable is the extent to which manufacturers launch holiday incentive programs. Depending on the value and availability of those programs, there is potential for May sales to exceed expectations,” Borrego added.

The SAAR for total sales is projected at 17.4 million units in May 2016, down from 17.7 million a year ago.

Jeep sales have climbing steadily month after month. The new Grand Cherokee may help FCA keep that trend up in May.

(Mazda expects new CX-9 to maintain brand’s sales momentum. For more, Click Here.)

Total light-vehicle sales in May are expected to reach 1,539,500, up 2.2% on a selling-day adjusted basis from 1,632,354 from a year ago. Fleet sales in May are expected to hit 298,000, an 8.4% increase from 298,234 in May 2015, on a selling-day adjusted basis, suggesting the commercial business has become critical to carmakers this year.

Overall, Power estimated retail sales through the first five months of 2016 are projected to reach 5.6 million units, only 0.4% higher on a selling-day adjusted period with the same period in 2015. The pace is on track with LMC Automotive and J.D. Power’s full-year projection of 14.3 million units for retail sales, a 1% increase from last year.

Jeff Schuster, senior vice president at LMC Automotive, said, given that performance is running just behind expectations, is reducing its total light-vehicle forecast for 2016 to 17.7 million units from 17.8 million units.

“Vehicle-sales growth appears to be flattening out,” Schuster said.

(Click Here to see why Tesla is looking to raise $2 billion with a new stock offering.)

“While this is driven by an array of variables, including slow economic growth and stock market volatility, a pattern is emerging sooner than anticipated. While we do not anticipate a retraction in volume over the next 12-18 months, strong year-over-year growth will be difficult to come by,” he added.

The future path of new vehicle sales has ignited an intense debate across the industry with some analysts saying the believe that sales have peaked and are bound to decline. The only question in their view is the rate of the decline: will it be gradually or sharply.

By and large, carmakers remain optimistic about their prospects for this year and are planning to introduce a broad array of new vehicles before the end of the year and host of new vehicles such as 2016 Mazda CX-9, and the 2017 GMC Acadia, 2017 Honda Ridgeline and 2017 Chevrolet Cruze have yet to turn in showrooms.

However, with incentives rising another school of thought suggests that car sales have room to grow thanks to historically low interest rates, the growing availability of new safety technology and aging of the vehicle fleet in the U.S. is bound to help increase sales.

(To see more about GM’s plans to compensate owners of crossovers due to mileage error, Click Here.)

John Murphy, an automotive analyst for Bank of America-Merrill Lynch, said he believes that new car sales could grow to 20 million units annually before the end of the decade.

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