What November Sales Numbers Indicate for the Close of 2019


Here to give us an overview of this November’s numbers and what we can expect from Q4 and beyond is Charlie Chesbrough, senior economist and senior director of industry insights at Cox Automotive.


Jim F.: Hello everyone. Jim Fitzpatrick with CBT News. Thanks so much for joining me on today’s show. Today we’re so happy to have with us Mr. Charlie Chesbrough who is the senior economist and senior director of industry insights at Cox Automotive. Charlie, welcome back to the show.

Charlie C.: Yeah, thanks for having me.

Jim F.: Looks like we’re going to finish the year strong in the auto industry. Talk to us about some of the winners and losers for November and then we’ll talk about the year as a whole.

Charlie C.: Yeah. Well the market’s looking like it finished up a little bit. Most forecasts are, our own included, was expecting the market to be down just a hair in a year over year basis. But it’s looking like sales volumes are coming up anywhere between 1% and 2% from where they finished in November of 2018. Some of the big winners. Well it looks like the Japanese and the Koreans did quite well. We saw strong numbers from Toyota and Honda as well as Hyundai. They all had double-digit increases on year over year basis. The Detroit Three looked about flat or maybe down just a little bit, and if I had to say who kind of finished last at least to the big manufacturers in November, it was Nissan who was down, themselves were down double digits. So a little bit of a mixed bag across the individual OEMs, but on the whole of the market that looked quite strong for the month of November.

Jim F.: And why were the Japanese and the Korean brands up? Any special incentives or marketing?

Charlie C.: Yeah. We think that they went pretty aggressive on incentives. Some of the Hyundai in particular had quite a bit of some new product out there that they didn’t have last year, which certainly helped some of their year over year growth. And we think Nissan probably fell a bit as they tried to pull back a little bit on some of their fleet activity. As well as they’ve had some problems within the company in the management, sort of the corporate offices. Maybe consumers are hearing a little bit about that and are starting to pull back on the brand some.

Jim F.: Yeah, that’s very good. That’s a very good point. My brother-in-law was going to purchase a Nissan and felt as though hear some rumblings and watching CNBC and reading some things on the internet. And he said, “Eh, I think I’m going to stay away from it.” Which I thought was interesting that it would trickle down to the consumer level. Those are usually things that we talk about here at CVT and in the auto industry as a whole, but you don’t really think it’s going to have an effect on consumers out there. But I guess it does after a while. Right?

Charlie C.: Yeah, that’s right. Well we know we’re in the information age and consumers know just about everything that’s going on out there. Even for these individual OEMs. And as you mentioned, other winters, if I could just throw out there, it looks like luxury did quite well in the month of November. We saw some of the luxury manufacturers of BMW and Mercedes both had some strong year over year numbers and even some of the brands, Lexus part of Toyota had a very nice double-digit increase. So we were seeing that consumers were spending money out there and getting some of the luxury brands. We generally do see a lot of strong luxury activity in the fourth quarter of the year. So that’s not entirely surprising, but it is a good sign I think for the industry to see such strength at the end of this year. Particularly with all the rumblings out there that maybe a recession is coming, and everybody should start batting down the hatches. We certainly don’t see that from the vehicle market,, at least we in the month in November.

Jim F.: So speaking of that, will we see any tailwinds between now and the end of the year? I mean, we’re only a few weeks away I guess. But is there anything on the horizon that might slow the growth down in December?

Charlie C.: Boy, it’s really hard to see anything that that should really derail where we’re at right now. Economics is suggesting that things are looking very strong through the remainder of the year. Unless we see a crash in the stock market, which I don’t think anybody’s expecting at this point. Or the president decides he wants to go forward with the trade war and gets really aggressive with tariffs. It’s hard to see something that would derail the market at this point, at this late stage.

Charlie C.: But as we look into 2020 there’s certainly a lot of question marks that the industry is dealing with and that’s where the real dichotomy of of opinion on what happens next is. For us forecasters, that’s what we’re struggling with right now.

Jim F.: And as you said, we don’t know what’s happening in DC. There’s all kinds of talk of obviously the impeachment proceedings are taking place as we’re doing this interview right now. And what kind of an effect do you think that would have on a market?

Charlie C.: At this point it seems to me that as long as Wall Street is shrugging off the impact of these impeachment hearings, I think vehicle buyers will do the same. Where it gets a little bit more dicey is as we get later into 2020 if we see the Democrats looking very, very strong and maybe the president loses his office, then the potential of tax reform being overturned rises. And that may have direct implications for the vehicle market. The tax reform bill of 2017 had some substantial changes in depreciation allowances on business use vehicles. As a result of that, we’ve seen very, very strong fleet activity over the last two years. If tax reform was overturned and those depreciation allowances were changed, we could see that fleet activity would start to fall from the high levels it’s at today. And that certainly would be a negative for the vehicle market. Not expecting it today, but that’s certainly one of the question marks out there.

Jim F.: What are you forecasting for the end of the year? What do you think? What will the SAR be?

Charlie C.: Well, our expectation is we’re going to finish right along the pace that we’re doing right now, which is around a 17 million sales pace. Five years in a row of 17 million. And it really just a phenomenal market.

Jim F.: It’s getting kind of boring, Charlie, you know?

Charlie C.: Pardon me?

Jim F.: I said it’s getting kind of boring, you know? 17 million every year, you know?

Charlie C.: Yeah. Well, I think the industry would be very happy if we could just stay at this level indefinitely. I don’t think anybody would be complaining.

Jim F.: It really is. It’s just amazing.

Charlie C.: One of the things that’s really been fueling the market has been this fleet activity, and we’ve seen relatively weak retail activity for two years in a row. So folks like you and I buying vehicles is becoming less prevalent, and it’s really much more of the rental fleet and commercial fleet activity that’s been keeping this market elevated.

Charlie C.: As I said, we think the tax reform made a major contribution to that changing these depreciation allowances. The question we’re wrestling with in 2020 is, is there any upward growth in fleet from here or is that market sort of tapped out after two years of strong gains? If we saw that fleet started to decline, there’s little reason to expect the retail side of the market’s going to gain in 2020. So we could see a much weaker market. And in fact, that’s kind of what our expectations are going forward for the next year is that this market’s going to fall back a little bit more in the mid 16 million range down from the 17 million spot that we’re at right now.

Jim F.: And then of course the tariff situation is one that we’re looking at, keep monitoring, but it doesn’t seem to have much movement. Right?

Charlie C.: The president’s still wrestling with what he’s going to be doing with China. That sort of peripherally impacts the industry through some vehicle parts, but not so much on the vehicle production side. It’s really sort of European tariffs were what we were most concerned about is was he going to go forward on a massive 25% import tariff. He announced a few weeks back that no, he’s going to delay that decision for another six months. So we’re kind of all just going to be waiting until next spring until he revisits this again. It seems unlikely at this point. I think most folks are kind of discounting the threat that he’s actually going to go forward with it. But you never know with President Trump, what he wants to do. He wants to play that card.

Jim F.: Yeah, boy, that that’s for sure. And so first quarter of 2020, we’ll probably just see more of the same that we saw in the last quarter of 2019.

Charlie C.: It could be. One of the things we’ll probably see a little bit less of is incentive activity. The manufacturers have been quite aggressive with incentives here in the fourth quarter. They’re trying to move that old inventory off of the dealer lots to make room for the new model years. Generally we see in the first quarter of the year they start to back away from that because a lot of that inventory has been sold. So if you’re looking to buy a vehicle, you’re probably going to get your best deals here over the next few weeks. Once we get into January and all the industries on sort of new sales schedules and everybody’s bonuses are on some different numbers, folks may be a little less inclined to make the deals then than they’re making right now.

Jim F.: Right, right. Has the strike had much of an impact on fourth-quarter sales for 2019?

Charlie C.: We think that if you look at October’s SAR. The seasonally adjusted number was around 16.5 million. So it had taken a little bit of a noticeable dip from the 17 million pace that we were on, but it’s back up in the month of November, what we just finished. We think that the reason for that dip was the strike, the GM strike. That probably eliminated a few tens of thousands of vehicles that GM would have sold otherwise. They pulled back, either consumers pulled back from not wanting to cross picket lines in order to buy a vehicle from them, or probably more likely some fleet deliveries were put on hold while they made sure that the retail channels had the products that they needed. So I think it probably had a temporary blip, but I don’t think it’s much that we’re seeing going forward from here.

Jim F.: Well, Charlie, I want to thank you so much for joining us on CBT. It’s always a pleasure, and we’ll see you right back here in four weeks.

Charlie C.: All right. Thank you much.

Jim F.: Talking about December. Thanks so much.

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