DesRosiers: View Canadian Market Growth Carefully
RICHMOND HILL, Ontario — New-vehicle sales in Canada climbed 4 percent during April, but the market so far in 2010 is largely divided between haves and have-nots, as some automakers have managed to thrive, while others have struggled due to "very different reasons," according to DesRosiers Automotive Consultants.
Company president Dennis DesRosiers also urged caution when looking at the 4-percent growth during April, a month which had a seasonally adjusted sales rate of 1.52 million units. This pace was the second-lowest for an April "since 2001," he pointed out.
With the "so-called" economic strength in Canada and discounts offered by automakers during the month, April sales should have been much higher, DesRosiers argued.
Specifically, there were 149,658 units sold in April, compared to sales of 143,931 vehicles a year ago, the company noted. Through the first four months of the year, sales have reached 476,910 units, an 11.3-percent gain over last year's pace.
"The light vehicle market in 2010 is clearly segmenting into a ‘have' versus ‘have-not' type of market. At least the early part of this year it has been that way," suggested Dennis DesRosiers, company president.
Among the "haves," DesRosiers specially singled out Audi, which saw a 38.5 percent upswing, while also noting strong performances in the luxury segment by Mercedes-Benz (18.5 percent gain) and BMW (34.6 percent gain).
"Audi is the luxury marque most loyal to their brand values and it is paying off big time for them," he noted. "There is an interesting conundrum in the luxury markets. Those OEMs who don't chase down rat hole after rat hole in search of volume (like Audi) tend to grow and those that do chase after volume tend to get small … maybe not market share but bottom line.
"There is still an incentive war in the luxury brands and this is pushing sales of most luxury brands significantly higher," DesRosiers continued.
Meanwhile, Ford is performing strongly with a 24.7-percent improvement in April and a 27.9-percent gain in year-to-date sales, along with Hyundai (up 15.6 percent in April; 22.3 percent year-to-date).
And in "a surprise to some, although not myself," DesRosiers said, Chrysler enjoyed a 35-percent improvement in April. The Big 3 automaker's sales so far this year have improved 21.4 percent.
Volkswagen's sales climbed 25.7 percent in April. So far this year, it is 34.6 percent ahead of last year's pace.
Kia's sales climbed 18.3 percent in April. Through the first four months of the year, it has improved 25.5 percent.
"There is a group of companies in the middle whose sales are up slight this year, but they are underperforming the market, so although positive it is hard for analysts like myself to be overly positive about their performance," he commented.
Meanwhile, General Motors, Toyota/Lexus and Honda/Acura make up the group of "have-not" automakers.
"All three seriously underperform the market and all three for very different reasons," DesRosiers explained.
"And indeed at the root of the success of so many of the ‘have' companies is the radical under performance at General Motors and Toyota/Lexus and Honda/Acura," he continued. "When you have three of the six largest companies in the industry in difficulty it leaves a lot of room for others to do well."
So why have each of these respective OEMs struggled?
For GM, it comes down to the impacts from its brand reduction — especially Pontiac, whose shutdown DesRosiers suggested was more impactful on the Canadian market than the United States'' — as well as dealer shutdowns and "orphaned" owners.
When GM rejected 238 dealers in Canada, it "cost them significant distribution clout."
"There are close to 2 million owners of GM brands that have been orphaned and many are finding lovely homes at competing dealers and brands. And with GM their under performance is getting worse rather than better," DesRosiers pointed out.
Specifically, the automaker saw a 20.9-percent drop in April sales. Furthermore, its sales so far in 2010 have weakened 15 percent.
"They have settled in at around a 15 percent market share, which was their goal so I suppose internally they would say they are please with their performance," DesRosiers commented. "I always find it odd when companies tell be they are happy with their performance ‘because it could be much worse,' but so be it."
Continuing on, what have hurt Toyota/Lexus have been its recall problems, which are "catching up with them."
During April, there was a 16.7-percent decline in Toyota/Lexus sales. Granted, sales so far this year are up 3.2 percent, but compare that to the overall market, whose year-to-date sales have improved more than 11 percent, DesRosiers pointed out.
"With Toyota/Lexus the recall issue is catching up with them," he stated. "It didn't the first couple months into the problem likely because of pre-booked sales but now that buyers that were in the system have been cleared out there are a lot fewer buyers coming into their showrooms."
Meanwhile, not providing any discounts have hampered Honda/Acura, whose sales softened 1.5 percent last month. Like Toyota/Lexus, their sales are up year-over-year (5.8 percent), but again, this increase is "well below" the overall industry.
"Honda/Acura refuses to play the heavy discount game (at least not until recently and not as much as most others) and this has hurt their sales performance for quite some time now," DesRosiers pointed out.
"There is some good to Honda's strategy since by staying somewhat away from 'discount' fever they protect their brand and profits but it does mean they underperform the market," he added. "The other issue with Honda/Acura is that the strongest part of the market this year has been fleet sales and they also refuse to play in this space."
Summing it up, DesRosiers emphasized that the 4-percent gain in the industry during April is not reason to necessarily get overjoyed. A gain is a gain, but there are several mitigating factors to consider when viewing the 4-percent sales hike, he warned.
DesRosiers argues that new-vehicle "came back down to earth" after a first-quarter gain of more than 15 percent put a lot of automakers in "‘never never land' type of thinking."
"Yes, April was up 4.0 percent, which is better than being down 4.0 percent, but remember three things … First, there were all time record levels of incentive money in the market throughout April … this clearly didn't work and was probably a waste of scarce resources for a lot of OEMs," DesRosiers pointed out.
"Second, and even more important April last year was a poor comparable," he added, pointing out that last month's were the second-worst April in the last 10 years.
Also, with Canada's "supposedly" improved economy, the gain in vehicle sales should have been higher. In essence, the economic gains aren't being translated in the auto market.
"So with a so-called economic recovery, the amount of incentive money being put on the windshield of so many brands and weak comparables one would have expected sales in April to be up double digits," he added.
"Four percent has to be disappointing and a serious worry to many OEMs," he continued. "If GM, Toyota/Lexus and Honda/Acura ever get turned around, this level of market performance would cause many an OEM some serious problems."
DesRosiers concluded: "This reinforces the view that the companies that are doing so well (with some exceptions) are likely feeding off of the three under performers rather than doing so well because of any fundamental strength in the market."