Car Volumes Miss Expectations, Stocks Down

A leading retail stock index focusing on the automotive sector, the Kerrigan Auto Retail Index, was down 8.14% for the month of March, under-performing the broader S&P 500 Index, which decreased 0.04%.

This brings year-to-date performance for The Kerrigan Index to -9.48%, as compared to a positive 5.53% for the S&P.

Each of the seven component stocks were down in March, with five of the stocks down over 7% for the month.  Asbury Automotive Group posted the largest loss with a decrease of 11.81%, followed by Lithia Motors (-10.74%), CarMax (-8.28%), AutoNation (-7.78%) and Sonic Automotive (-7.57%).

Behind the trend was a disappointing performance in sales for March, which missed expectations, declining 1.7% year-over-year versus forecasts predicting a slight rise.

As a result, analysts may start to revise 2017 SAAR estimates, currently in the range of 17.4 to 17.6 million units.  Moreover, March’s sales level required increasingly significant rebates.  According to Deirdre Borrego, senior vice president at J.D. Power, “the competitiveness of the industry continues to be evident in ever-rising incentive levels. Incentives will reach a new high for the month of March and will exceed the 10%-of-MSRP threshold for the ninth consecutive month.”

Another significant issue negatively impacting auto retail stocks, as well as auto finance and auto rental stocks, is the declines in used car pricing.  The National Auto Dealers Association Used Car Guide Index fell 3.8% in February, the steepest drop since November 2008.  Additionally, auto lender Ally reported a 7% drop in used car prices in the first quarter, more than its 5% forecast.

Other significant industry data include:

Trucks accounted for 61.5% of new-vehicle retail sales in March—the highest level ever for the month of March—making it the ninth consecutive month over 60%.
Fleet sales are expected to total 374,600 units in March, down 1.2% from March 2016.  Fleet volume is expected to account for 23.1% of total light-vehicle sales, a slight decline from 23.8% in March 2016.
Average incentive spending per unit through the 12th of March is $3,768, a record for the month, and surpassing the previous high of $3,609 set in March 2009. Incentives as a percentage of MSRP were 10.4%, exceeding the 10% level in March for the first time since 2009.
The average new-vehicle retail transaction price to date in March is $31,074, a record for the month, surpassing the previous high of $31,049 set in March 2016.

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