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May Sales Drop – A Blip or a Trend?
Just when we were beginning to feel good about the auto industry following eight months of sales growing by percentages in the double digits, sales plunged in May, down 4% from May of last year.
The question is whether the drop will be a trend the rest of the year or a “minor” disruption for a couple of months. The major challenge is lack of inventory resulting from the earthquake in Japan earlier this year. The lack of inventory has led to record average transaction prices of nearly $29,000.
With little to no inventory, incentives have plummeted, especially those from the Japanese companies. According to TrueCar.com, incentives in May were at their lowest level since 2002. High gas prices that have likely kept buyers out of showrooms haven’t helped either.
Toyota’s sales dropped almost 28% from last year while Honda sales were down 16.1%, according to Ward’s AutoInfoBank.
Sales for General Motors, Ford and Chrysler, however, continued to increase, although at a slower pace than earlier this year.
The good news is that production appears to be coming back and should be at normal levels by the end of June with inventory reaching dealer lots in July and August. Already, Toyota has jumped back into the incentive game last week offering numerous deals on its top vehicles.
For dealers, it’s a matter of timing of when to ratchet up the advertising again. Dealers also should keep a close watch on used vehicle inventory and pricing. Used vehicle prices have jumped along with new vehicle prices creating a likely used vehicle bubble, but once incentives come back in August look for that bubble to come back to earth in a big way.