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Stock Analyst Update

Auto Industry's Growth Streak Ends at 7 Years

GM's December sales fell year over year, while volume rose at Ford.

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Automakers closed out 2017 U.S. auto sales with December numbers reported Jan. 3. December light-vehicle sales declined by 5% year over year, but we calculate a 1.3% decline adjusting for one less selling day than December 2016.

Crossovers continue to do well at the expense of sedans, and we expect that trend to continue in 2018. Premium brands such as Lexus, Cadillac, and Lincoln all had a weak month. Ford believes consumers are valuing function over brand cachet and buying expensive SUV models such as Explorer at premium prices.

For the full year 2017, sales came in at about 17.25 million, which was the third straight year at over 17 million and the fifth time ever. The 1.8% year-over-year decline was the industry’s first annual decline since 2009. We expect 2018 sales to again decline but not severely. We continue to believe that leasing is done growing its penetration at about 30% of new vehicle sales and a continued rise in off-lease supply will in our view draw some consumers back into the used vehicle market.

 Ford’s (F) December volume rose 0.9% year over year as a 16.8% fleet increase more than offset a 4% decline from the retail channel. Ford’s rental fleet sales made up 11.8% of December sales, a 560-basis-point increase from December 2016 but not dramatically off from the company’s full-year rental mix of 11.1%. Crossovers and SUV volume rose 8%, while cars fell 5.5% and the truck segment fell 1%. The F-Series pickup, however, rose 2.1% for its best December and best full-year sales since 2005 at nearly 897,000 units, with record average transaction price of $47,800, up $3,400 from 2016.

Ford’s SUVs had a record year, selling just under 800,000 vehicles and a record December. Explorer’s sales rose 33% for the month for its best December since 2003 and best full year since 2005. Although Lincoln struggled with the rest of the premium market, with its December sales down 17%, the one bright spot was the new Navigator, which rose 30%.

 GM’s (GM) December sales fell 3.3% year over year while retail volume increased 1.8%. We calculate GM’s total sales rose 0.4% adjusting for one less selling day in 2017. GM’s total fleet sales fell 22% thanks to a 40% decline in rental business, a move we like since it helps GM’s residual values. For the full year, GM’s commercial and government fleet business had its best year since 2008, and 2017 was the first year in at least 25 years that GM’s rental sales were less than GM’s commercial and government sales. For December, GM’s incentives as a percent of average transaction prices after incentives was high at 14.8% (13.3% for the fourth quarter) but ATPs for December of over $38,000 and over $35,400 for the full year were both records. Strong crossover demand from vehicles such as the new generation Buick Enclave, up 40% in December, and a 25% increase in Silverado pickup sales help mitigate the higher discounting.

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David Whiston does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.