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Stock Analyst Update

Auto Sales: Slight Decline but Still Healthy

Both Ford and GM faced tough comparable from last year.

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Automakers reported September U.S. light-vehicle sales that faced a difficult year-over-year comparable due to September 2017's large boost from replacement demand after Hurricane Harvey in Houston and from one less selling day in September 2018. Total sales for this September, excluding Audi, which has not reported yet, came in at 1.42 million, down 5.6% year over year. We calculate that on a constant selling days basis, sales declined by 1.8%. We expect the vast majority of the hurricane comparable problem to be in September 2018, but we expect October will also see some negative impact year over year. Despite large negative variances in headlines, we do not think the industry is in a bad position. Sales, although declining, are still healthy, and automakers are enjoying Americans' continued mix shift to light trucks over sedans. The former are nearly 70% of U.S. light-vehicle sales each month, and GM's and Ford's own mix is about 80%.

 Ford's (F) September sales fell 11.2% year over year, or by 7.6% adjusting for the one less selling day. Retail channel volume fell 12.6%, while fleet declined by 6.7%. Ford's Houston-area business declined 44%, but sales chief Mark LaNeve said on the call that Ford Houston dealers still feel they had a good month. LaNeve could not quantify the impact from Hurricane Florence in the Carolinas, but it appears the vehicle loss from Florence is only a fraction of the loss from Harvey. F-Series pickup sales did fall 8.8% but remain robust at 75,092 units. The truck has sold over 70,000 units for seven straight months and is posting record pricing of $46,600 per unit, while Super Duty models also posted a record of $59,100 per unit. The new-generation Expedition and Lincoln Navigator are thriving, with increases of 27% and 77%, respectively. Navigator's top market is California, an encouraging sign, with its sales there up 167% in September.

 GM (GM) only reports quarterly sales, and its volume fell 11.1% in third-quarter 2018 versus third-quarter 2017. We calculate an 8.7% decline after adjusting for two extra selling days in the prior year's quarter. GM put the third-quarter 2018 seasonally adjusted annual rate at 16.9 million compared with 17.2 million in third-quarter 2017. GM kept its average transaction prices growing in the quarter, up $700 year over year to a third-quarter record of $35,974. Mix moving to light trucks and fairly new crossover products helped ATP growth despite industry demand slowing from recent years. GM's third-quarter incentive spending as a percentage of ATP came in at 12%, slightly below the industry's 12.1%, according to J.D. Power data cited by GM. We'd prefer the industry's ratio be below 10%, but we think that is not going to happen soon given we are late in the economic cycle. Still, we are glad to see GM's ratio down considerably from 13.6% in the first half of 2018 and down 160 basis points versus third-quarter 2017.

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

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