Why June's Automotive Sales Actually Will Be Better Than They Appear

Automotive sales have been interesting to follow this year. Ford  has struggled to boost sales, while Fiat Chrysler Automobiles has surpassed the wildest projections. Meanwhile, General Motors' sales are up 3% year to date and 13% in May, compared to last year, despite its ongoing massive recall debacle. Though many people screamed that the sky was falling in January and February as sales took a big dip, the numbers have since rebounded strongly and look to drive even higher.

Let's look at why June sales might take a slight sequential dip, and also at why the sales performance will be stronger than it looks.

How it's going to shake out
There's little doubt that vehicle sales in June, when officially reported on July 1, will check in below May's phenomenal 16.8 million seasonally adjusted annual rate, or SAAR. However, another strong performance above 16 million would further prove that demand for new vehicles remains strong.

June information is forecast by Edmunds.com and J.D. Power.

Both J.D. Power and Edmunds.com predict total vehicle sales to check in at a SAAR of 16.3 million units for June. That would be a strong monthly performance and compares favorably to the June 2013 SAAR of 15.98 million. Still, sales in June are expected to decline roughly 3%, compared to last year. What gives?

The automotive industry reports sales on a sales month basis instead of a typical calendar month basis. In English, that simply means that the number of selling days can vary between comparable months. For instance, June 2014 has only 24 selling days while June 2013 had 26. May also had more selling days than June with 27, including a fifth weekend, which helped drive sales higher.

Basically, this June's results are facing tough sequential and year-over-year comparisons. While overall sales volume is expected to decline in June, compared to the previous year,, when you adjust for the difference in selling days June's sales are actually expected to check in 5%-6% higher than last year's result.

But all of the sales figures discussed so far are wholesale numbers, which aren't as representative of true vehicle demand as retail sales. After all, these projections are misleading if the cars end up sitting on dealership lots collecting dust. 

It's all about the retail
A consistent decline in retail sales would be a red flag for automotive investors. Fortunately, that doesn't look to be the case in June. For example, J.D. Power expects retail sales of light vehicles to check in at 1.1 million units for the month; when adjusting sales for the difference in selling days, that would hash out to an increase of 6% over last year's June.

"When combined, May and June retail sales are expected to be up 7.2 percent, compared with May and June 2013, which underscores the continued positive trajectory in growth and overall health of the industry," said John Humphrey, senior vice president of the global automotive practice at J.D. Power, in a press release.

With the explanation of June's projected sales decline out of the way, let's look at how the individual automakers are expected to stack up.

Winners and losers
Here's is Edmunds.com's sales forecast for the top five automakers, by wholesale unit volume, for June.

Source: Edmunds.com

If those June projections pan out when automakers report official results Tuesday, General Motors would be the biggest year-over-year loser in terms of market share, with a decline of 110 basis points, to 17.8%. On the flip side, Fiat Chrysler Automobiles looks to be up 110 basis points, to 12.3%. Ford would check in with 16.2% of the market, a 60-basis-point decline compared to last June. Toyota rounds out the top three, in terms of market share, with a 60-basis-point increase to 14.6%.

Ultimately, investors should keep selling days in mind when looking at the overall industry sales volume. It would be wise to focus more attention on SAAR levels or sales adjusted for selling days. Sales momentum is still strong and, according to J.D. Power, there is a 55% increase in new-model activity in 2014 compared to 2013. A plethora of new designs and models should continue to power sales higher in the near future. Just remember one thing on Tuesday: June's sales will indeed be better than they appear.