November U.S. light-vehicle sales came in at good levels as Americans continue to move away from sedans and into light-truck models. This mix shift is especially good news for the Detroit Three--each has a U.S. light-truck mix of over 70%.
Both Novembers had 25 selling days. November sales, excluding Nissan which had a technical problem, rose 1.1% year over year. GM estimated the seasonally adjusted annualized selling rate, SAAR, at 17.4 million compared with 17.83 million in November 2016.
November consumer confidence hit a 17-year high, interest rates remain low, product is more high-tech than ever, and the fleet remains old at over 11.5 years, so we see no reason to be fearful about 2018 demand. However, we continue to believe that U.S. light-vehicle sales peaked for this cycle in 2016 at 17.54 million.
Off-lease volume for this year will likely be about 3.6 million vehicles. We’ve seen recent forecasts for 2018 of 3.9 million and a peak of about 4.3 million in 2020. This extra supply in our view will only drive down used vehicle prices further and take more consumers out of the new vehicle market next year in favor of used. Leasing appears to also have a reached a peak for this cycle and was already quite high at about 30% of new vehicle sales, so we think contraction year over year is more likely than growth.
GM’s (GM) total November sales fell 2.9% from November 2016, while retail channel deliveries fell 0.1%. Chevrolet retail sales however increased 1.9%, and the brand had its best retail November volume since 2004. Fleet sales fell 13% as a 24% decline in rental offset a 7% rise in commercial and government volume. The fleet decline is a good thing as too much rental hurts residual values which then hurts retail channel volume. GM is now more optimistic on its year-end inventory guidance than earlier this year with their expectation that levels will end 2017 significantly lower than year-end 2016, as opposed to previous expectations of about equal to 2016.
Ford’s (F) total sales for November increased 6.7%, with retail up 1.3% and fleet up 25.9% due to a 490-basis-point increase in rental fleet mix. Rental made up 10.4% of total November volume versus 11% year to date. All three vehicle categories--truck, SUV, and car--increased year over year with SUVs leading at 13.3%. Edge set a November record, and its retail channel deliveries increased 25.5%. Explorer also fueled SUV growth with a 25% total rise helped by the launch of the 2018 model. F-Series continues to thrive for Ford, with its offerings having their best November in 16 years and pricing rising by $3,800 to $47,100 on average per truck.
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David Whiston, CFA, CPA, CFE does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.