The number of new cars and light trucks sold in America was down nearly 8% in April relative to the previous year. That’s a significant deterioration of the recent downward trend, but not yet a catastrophic plunge.
The number of domestically manufactured cars has been falling on average by 1% each year over the last four years. But the 15% drop last month is a significant deterioration relative to that trend. Sales of domestic light trucks, which had been falling 2% per year, fell 3% in April.
This spring’s run-up in gasoline prices doubtless played a role. But there are important differences between what we see happening to auto sales now, and the consequences of the gasoline price increases following the hurricanes in the fall of 2005. In that earlier episode, it was light truck sales (in which SUVs get counted) that took the big hit, whereas last month, sales of cars fell much more than light trucks.
Another important difference is that in the fall of 2005, domestic car sales fell much more than imports. By contrast, last month Toyota, Honda, and Nissan all shared the pain.
A final difference is that the overall magnitude of the April drop, as measured by the percent change in the total number of vehicles sold, is only about half that observed in October 2005:
I conclude that so far this is not looking like a replay of the very sharp drop in domestic auto sales that we saw in the fall of 2005, which drop shaved a full 1% off 2005:Q4 GDP growth. Although rising gas prices may have been a factor in the April sluggishness, I agree with Kash Mansori that the current data are more likely to be an early signal that slowing income growth and a perhaps a reduction in mortgage equity withdrawal are starting to show up in consumption spending.
So far, the magnitudes are ones we can live with. And it’s always a mistake to make too much of one month’s data. But the April vehicle sales certainly raise the level of concern.