April auto sales fall on shortages; Honda at 3-day supply

Dealers learned fairly early in the pandemic how to sell cars they didn't have.

What's proving tougher, though — judging from April's U.S. auto sales, at least — is trying to sell vehicles they might never get.

Lack of inventory remained the driving issue behind April's double-digit sales declines for five of the seven reporting automakers, including a drop of more than 40 percent for American Honda. Mazda North America had the smallest decline, at 3.3 percent.

Collectively, reporting automakers' U.S. sales fell more than 21 percent from a year earlier, according to the Automotive News Research & Data Center. Analysts from LMC Automotive estimated that industry volume plunged 17 percent overall.

The losses might look worse because they are measured against April 2021 — a month when the seasonally adjusted, annualized rate of sales crested at 18.5 million as widespread vaccine distributions and relatively stable inventories attracted shoppers to dealerships in droves. Last month's red ink was exacerbated by shoppers looking for vehicles that can't be found anywhere, even on dealer order books.

"Supply shortages continued to severely constrain SAAR in April," said Jesse Toprak, chief analyst at Autonomy, "and we don't anticipate any major relief until the fourth quarter of this year."

That was certainly the story at Honda. The brand began April with about 18,000 vehicles on dealership lots and entered May with only 12,235, "which means there were only 11 Hondas on the ground at the average store and a three-day supply," said Mike Kistemaker, assistant vice president of sales for the Honda brand.

The scarcest nameplates were the Civic and CR-V, which "finished with a one-day supply and turn rates well over 90 percent," Kistemaker said. "I have never seen a one-day supply of our product."

For Toyota North America, gross inventory numbers actually expanded in April by almost 11 percent to more than 137,000 vehicles, but its long logistics tail left the larger Japanese automaker starting May with just 13,831 vehicles spread across its 1,500 Toyota and Lexus dealerships in the U.S.

Kia also reported ongoing inventory woes. "We continue to have challenges with production and distribution of our vehicles," said Eric Watson, head of U.S. sales for Kia. "Our dealer inventories continue to be at historic lows, somewhere between seven and nine days' supply of vehicles on the ground."

The lack of vehicles to sell has meant consumers have had to expand their shopping to other brands or open themselves up to other choices, and that means automakers' sales have been bouncing around based on availability, said Randy Parker, senior vice president of national sales for Hyundai.

"Looking at the industry as a whole, it has been running in place — hovering around 900,000 to 1 million units monthly, give or take," Parker said. "From an OEM perspective, it's just an ebb and flow. One month this brand has a little bit more inventory, the next month that brand has a little bit more inventory."

After traversing COVID-19 and then the microchip shortage and other supply constraints for the past two years, automakers are staring at another long-term threat to sales: affordability.

"Higher vehicle prices and fewer entry-level vehicles mean the pool of who can buy new has shrunk," said Jonathan Smoke, chief economist with Cox Automotive.

The average incentive per new vehicle was on track to reach a modern low of $1,034 last month, 66 percent less than a year earlier, J.D. Power said. Meanwhile, the average interest rate on a new-vehicle loan was 4.8 percent in April, up from 4.6 percent the previous month, with loan terms averaging 70 months in April, according to TrueCar. To top it off, leasing — usually considered by consumers to be a more affordable alternative to purchasing — accounted for just 18 percent of retail sales in April, down from 30 percent in all of 2019.

"Increasing prices of vehicle components across the board, fueled by rising production and distribution costs along with strong consumer demand, will likely result in average transaction prices climbing to levels we've never seen before in the coming months," said Autonomy's Toprak. "This is a double-edged sword for the OEMs, as low levels of incentives spending will boost profitability, but the opportunity cost of missed sales will hurt top-line revenue."

Jeff Schuster, president of Americas operations and global vehicle forecasts for LMC Automotive, said supply constraints are still expected to ease this year and into 2023, which could put consumers sidelined by price and availability constraints back in play, despite interest rate increases by the Federal Reserve.

"That said, given the auto market has lost more than 7 million units of volume since 2020, there most certainly will be an element of demand destruction," Schuster explained. "We do expect light-vehicle sales to reach 17.3 million units by 2026 but don't see the market making up more than half of the pandemic-lost sales."

Carly Schaffner and David Phillips contributed to this report.