J.D. Power Doesn’t Expect April New-Vehicle Sales Pace to Last

While April new-vehicle retail sales have shown unexpected strength ahead of expected inventory shortages, J.D. Power and Associates believes the selling pace is expected to be slower during the second half of the month.

Analysts project April new-vehicle retail sales to come in at 948,100 units, which represent a seasonally adjusted annualized rate (SAAR) of 11.1 million units. They pointed out this figure marks the second time the retail selling rate has been above 11 million units this year,

J.D. Power also said the predicted April SAAR is well above the first-quarter rate of 10.7 million units.

“Retail sales in April are off to another strong start, as the month may be benefiting from consumers purchasing vehicles earlier while there is still ample inventory,” explained Jeff Schuster, executive director of global forecasting at J.D. Power.

“However, the pace isn’t expected to be sustainable as inventory dries up, especially among small cars, and becomes a more widespread problem toward the end of April and into May,” Schuster said.

J.D. Power calculated that total light-vehicle sales for April are expected to come in at 1,147,300 units, an amount that would be 13 percent higher than in April of 2010. The firm thinks April fleet sales should decrease to 199,100 units as volume is likely to shift to the retail market to support the current pace of demand.

Analysts added fleet volume is projected to be less than 18 percent of total April sales.

J.D. Power conceded the pace of sales through April would typically lead to an upward revision in the forecast for 2011. However, due to the high level of uncertainty related to the inventory situation and the full impact of parts shortages for non-Japanese OEMs, the firm is holding its forecast at 10.7 million units for retail sales and 13 million units for total sales.

“The industry is now facing its first real challenge since the recession, as potential widespread parts shortages could have a profound impact on the pace of the recovery,” noted John Humphrey, senior vice president of automotive operations at J.D. Power.

“However, with a lower and more variable cost structure, the industry is better prepared to weather the uncertainty,” Humphrey added.

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J.D. Power and Associates U.S. Sales and SAAR Comparisons

¹Figures cited for April 2011 are forecasted based on the first 14 selling days of the month.

²The percentage change is adjusted based on the number of selling days (27 days vs. 26 days one year ago).

In wrapping up its latest industry update, J.D. Power recapped that North American first-quarter production increased 17 percent from the same period in 2010. Analysts determined nearly 3.4 million units have been built in 2011 compared with 2.9 million units built in the first quarter of last year.

“However, for some manufacturers, near-term production has been impacted by parts shortages caused by the earthquake and tsunami in Japan, which is likely to worsen in the coming weeks,” J.D. Power pointed out.

Analysts also determined the overall inventory level heading into April was slightly better than expected at 54 days’ supply at the end of March, down only slightly from the 60-day supply level at the end of February. However, they stressed several small units and many models imported from Japan are in a much shorter supply situation.

With the strength of April sales combined with supply constraints from Japanese imports, inventory is expected to continue to be challenged for the next few months and will likely fall below 45 days’ supply, according to J.D. Power estimations.

“The supply side of the industry is just now starting to see the effects of the parts shortage and is bracing for additional production losses during the next quarter with volume through June expected to be down nearly 200,000 units from the previous forecast of 3.3 million units for the second quarter,” Schuster explained.

J.D. Power’s forecast for North American production in 2011 remains at 12.9 million units as lost volume in the near-term is expected to be made up by the end of the year.

"However, there remains a relatively low level of risk of a downward revision,” analysts concluded.