U.S. auto sales fell sharply in the second quarter – to no one’s surprise – as the industry provided its first detailed look at the toll on consumer demand exacted by the coronavirus.
Against the backdrop of a gradually reopening economy and surging COVID-19 cases in many states, declines ranged from 30 percent to 50 percent among the biggest automakers providing their first sales update since early April.
Two companies that still report monthly, Hyundai Motor America and Toyota Motor, tallied second-quarter declines of 24 percent and 35 percent, respectively.
“After falling into a deep recession in March, the U.S. economy has begun to recover as it reopens,” Genera Motors Chief Economist Elaine Buckberg said in a statement.
But she cautioned: “The path forward may not be linear, as rising infections in many states may lead to steps backward in the reopening process.”
The industry enters the second half of the year with a dramatically different mindset than six months ago. At that time, when reports of a deadly virus were first trickling out of China, the more optimistic estimates held a chance for a sixth straight year of U.S. light-vehicle sales above 17 million.
Now, in advance of Wednesday’s releases, analysts projected a June seasonally adjusted sales rate in a loose range around 13 million. And on Friday, Morgan Stanley analyst Adam Jonas lowered his July SAAR forecast to 12 million from 13.5 million, on expectations that dealer stockpiles of vehicles would shrink.
Company by company
Sales fell sharply at General Motors, FCA US and Nissan Motor Co. during the second quarter as the coronavirus brought much of the auto industry to a standstill.
GM said volume dropped 34 percent during the period, with retail deliveries down 24 percent, and overall demand off 34 percent at Chevrolet, 33 percent at GMC, 36 percent at Buick and 41 percent at Cadillac.
Facing shortages of key models as consumer demand slowly recovers, particularly large pickups and SUVs, GM said its increasing factory output “will be devoted to restocking retail channels with capacity made available by lower rental volumes.”
FCA US, citing the economic havoc caused by the outbreak, said second-quarter U.S. sales slumped 39 percent to 367,086, with every brand posting a decline of 21 percent or more. Volume fell 27 percent at Jeep and 35 percent at Ram during the period.
Jeff Kommor, head of U.S. sales for FCA, said retail sales have rebounded since April, with steady gasoline prices, access to low-interest finance rates and renewed economic activity prompting some consumers to shop and purchase a new car or truck.
FCA said it prioritized retail deliveries over fleet volume in the second quarter and indicated it has a “strong fleet order book” which will be fulfilled in the second half.
Toyota Motor Corp., sales fell 10 percent at Lexus and 29 percent at the Toyota division.
At Nissan, second-quarter sales plunged 50 percent behind a 50 percent drop at Nissan and a 44 percent decline at Infiniti, though the automaker said retail sales exceeded expectations during the period as it continues to “decrease rental fleet volume and focus on steadily building a quality, sustainable business.”
Hyundai sales fell 22 percent in June, the brand’s second-smallest monthly drop since the coronavirus idled the auto industry and shuttered showrooms coast to coast starting in March. Second-quarter volume dropped 24 percent.
Hyundai said retail sales, up 6 percent to 48,935, rose for the second consecutive month in June, behind strong crossover volume, which represented 69 percent of retail deliveries. Hyundai was one of just two automakers to cut incentives last month, according to ALG/TrueCar. (See chart below.)
Fleet sales dropped 93 percent and represented 2 percent of June volume, the company said.
Among other automakers, June sales slipped 12 percent at Subaru, while second-quarter deliveries fell 17 percent at Mazda and 20 percent at Porsche.
Most other automakers will report results for the month and second quarter later Wednesday. Ford Motor Co. plans to release U.S. sales figures for the second quarter on Thursday.
June forecasts
Light-vehicle sales are forecast to fall 24 to 30 percent in June, based on estimates from ALG/TrueCar, J.D. Power /LMC, Edmunds and Cox Automotive, with every automaker posting declines. Second-quarter deliveries, led by lower fleet demand, are also expected to drop sharply across the industry as a result of the COVID-19 outbreak that crimped showroom activity and light-vehicle output.
The overall market dropped 23 percent this year through May, with fleet shipments off 38 percent and retail volume down 19 percent, according to Cox Automotive.
Pent-up consumer demand, easing government restrictions on business and household activity, and record incentives all provided a tailwind for the industry in June, said Thomas King, president of the data and analytics division at J.D. Power.
“Remarkably, in markets like Detroit — one of the most severely affected areas by COVID-19 — retail sales are on pace to exceed 2019 levels,” King said.
Headwinds
Still, the next few months, when government stimulus programs run out and additional jobless benefits expire, and unemployment is expected to remain elevated, will provide another test of consumer resiliency.
And with new coronavirus cases increasing, notably in the west and south, and in some of the industry’s biggest markets — Houston, Los Angeles and large swaths of Florida – households, dealers and automakers could face new restrictions depending on local and state efforts to contain the virus.
Ford, in the latest sign automakers are bracing for a spotty rebound, this week said customers who lease or purchase a new or used vehicle through Ford Credit — and then lose their job within a year – can return the vehicle without paying any remaining balance up to $15,000.
With consumers returning to showrooms and assembly plants ramping up output, inventory is running tight, notably popular pickups, crossovers and SUVs such as the Ford Explorer and Ram pickup.
Some Honda dealers report they are running low on some popular cars – notably Civic LX, Civic hatchback and Accord LX models. The shortages are expected to undermine industry sales in July and August, when many dealers expect inventories to begin to rebound.
SAAR
The seasonally adjusted sales rate is expected to tally 12.6 million to 13 million, down from 17.22 million in June 2019, but up from May’s 12.2 million rate, Cox Automotive, Edmunds, J.D. Power and ALG/TrueCar estimate.
Barclays analyst Brian Johnson, citing new insurance policies and other data, estimates the June SAAR will come in at 13.1 million.
Incentives
Incentives were on track to reach $4,411 in June, the highest ever for the month and an increase of $445 from June 2019, J.D. Power said. June incentives on cars are expected to rise $459 to $4,031, with deals on trucks and SUVs rising, on average, $407 to $4,524.
ALG data show the Detroit 3 continue to be among the biggest spenders on incentives among mass-market automakers, though Volkswagen Group and Honda Motor Co. posted some of the biggest increases in June. (See chart below.)
Odds, ends
- There were 25 selling days last month, down from 26 in June 2019.
- Fleet deliveries are expected to drop 68 percent last month from June 2019, adjusted for selling days, and up 22 percent from May 2020.
- Average new-vehicle transaction prices came in at $36,322 for June, up 3.2 percent, or $1,117, from June 2019, but down 0.2 percent, or $88, from May 2020, ALG said.
Quotable
“As states across the U.S. begin to loosen lockdowns in an effort to bring back economic activity, the world’s biggest economy has a long way to go to return to pre-pandemic heights. We estimate that it will take about two years for U.S. GDP to regain its year-end 2019 level, with unemployment remaining high, consumer spending depressed, and business demand recovering only slowly.”
— Beth Ann Bovino, U.S. chief economist at S&P Global
