Market slumps 17% as chip crunch spreads

The severe microchip shortage and other supply-chain constraints that have plagued automakers for months have now ensnarled Toyota, Honda, Hyundai and Kia, while dealing another ugly blow to Ford Motor Co.

Overall, U.S. light-vehicle sales tumbled 17 percent last month, Morgan Stanley analyst Adam Jonas said Thursday. Sales were expected to fall 4 to 18 percent in August, based on estimates from Cox Automotive, TrueCar, J.D. Power and LMC Automotive.

While record low inventory levels undermined August sales, Jonas said the industry may also be facing a strike by buyers, citing ‘nosebleed’ pricing above MSRP. Because of record low stockpiles, many new-vehicle sales are subject to market adjustments by dealers, driving prices higher. (See chart below.)

"Maybe the consumer has decided to ‘wait it out’ until prices fall?," Jonas wondered in a new report.

The seasonally adjusted, annualized rate of sales for August dropped to 13.09 million, Motor Intelligence said, at the low end of the range of forecasts -- 13.1 million to 14.4 million. That is the weakest SAAR reading of the year and the lowest since June 2020’s 13.23 million rate, early in the COVID-19 pandemic.

The SAAR has also declined steadily since hitting a 2021 peak of 18.5 million in April.

August U.S. light-vehicle deliveries dropped 2 percent at Toyota Motor Corp., with volume down 2.4 percent at the Toyota division but edging up 0.5 percent at Lexus.

Some of the Toyota brand's biggest sellers posted notable declines, with Highlander volume off 11 percent and RAV4 deliveries down 24 percent. Camry deliveries slipped 3.1 percent and Tacoma dropped 4.5 percent.

Toyota, which plans more production cuts in coming months, said it ended August with 132,934 cars and light trucks, or an 18-day supply. Toyota division stockpiles totaled 106,985 at month-end, or a 17-day supply, while Lexus had a 24-day supply, or 25,949 light vehicles. Actual dealer stock is much lower because of inventory at ports or in transit, Toyota said.

Ford Motor Co.'s August sales tumbled 33 percent, with volume dropping 33 percent at the Ford division and 44 percent at Lincoln. Ford's biggest sellers all posted double-digit declines in volume: F-series, down 23 percent; Ranger; off 68 percent; Explorer, down 57 percent; Escape, off 33 percent; and Transit, down 36 percent. 

The company said August inventory rose 34 percent compared to July and that it has 214,500 light vehicles in gross stock.

Ford, signaling demand remains strong as production continues to recover, said it received 41,000 new retail orders last month, a four-fold increase over August 2020. The company has also offered up to $1,000 in bonuses to shoppers who order a vehicle to be delivered at a later date.

Volume was off 16 percent at Honda Motor Co., with sales down 18 percent at the Honda division but up 4.7 percent at Acura. It was the company's first decline since sales dropped 11 percent in February. CR-V deliveries fell 19 percent and Accord volume skidded 24 percent last month.

After a stretch of monthly record sales, August deliveries fell 3.7 percent at Hyundai and 5.3 percent at Kia, the companies said Wednesday.

Sales of some of the two companies' most popular light trucks -- the Hyundai Palisade, Tucson and Santa Fe, as well as the Kia Telluride, Seltos and Sorento -- dropped last month.

Kia said it sold 74 percent of available inventory last month and Hyundai ended August with 39,357 new vehicles in U.S. stock, a decline of 15 percent from 46,113 in July.

Eric Watson, vice president of sales operations at Kia America, cited "challenges facing the industry regarding parts availability and overall inventory” for the company's August results. 

Hyundai said overall retail sales fell 7 percent last month, with retail deliveries of cars off 3 percent and light trucks down 9 percent, suggesting more shoppers are delaying a purchase until availability and selection improve.

"Consumer demand for Hyundai vehicles remains at an all-time high and we expect our inventory pipeline to improve throughout the remainder of the year," said Randy Parker, senior vice president for national sales at Hyundai Motor America.

At Subaru, sales dropped 15 percent, behind weaker volume for two of the brand's top-selling models -- Forester, down 27 percent, and Outback, off 4.3 percent.

U.S. sales at Volvo rose 3 percent, the 15th straight monthly advance for the company.

August volume rose 4.6 percent at Mazda and new crossovers continue to boost Genesis, with sales soaring 266 percent to 4,975. The rest of the industry reports sales on a quarterly basis.

The severe microchip shortage, along with new COVID-19 restrictions in southeast Asia that have disrupted key supply chains, continue to undermine car and light-truck output and supplies.

Inventories remained severely depressed and well below 1 million in August, J.D. Power and LMC Automotive say, compared to car and light-truck supplies of 3 million two years ago.

Honda last week warned September U.S. deliveries to dealers will be 40 percent below planned levels, even as the company prioritizes North American output.

On Thursday, General Motors said it will suspend output at six North American plants for two weeks this month and two others for a week each because of tight computer chip supplies. The factories build some of GM's most popular and profitable models, including large and midsize pickup trucks, and crossovers.

Several analysts and automakers have begun to slash their outlook for U.S. sales in 2021. LMC early last month cut its forecast for U.S. deliveries this year to 16.5 million, a drop of 400,000 units from its previous forecast, and then down again to 15.8 million late last month.

The company this week reduced its 2021 forecast again by another 100,000 units, and now sees sales coming in at 15.7 million after August's results.

"I don’t see any relief in September and with the additional production cuts announced over the last two weeks, it may be as bad or worse this month," said Jeff Schuster, president of Americas operations and global vehicle forecasts at LMC Automotive.

Average incentive spending per new light vehicle in August is expected to fall to $1,823, down from $3,955 in August 2020 and $4,060 in August 2019, J.D. Power said. Incentive outlays as a percentage of the average MSRP is expected to drop to 4.3 percent, down 5.3 percentage points from August 2020 and down six percentage points from August 2019, J.D. Power said. TrueCar estimates incentives fell $1,537, or 39 percent, to $2,432 last month from August 2020.

• There were 25 selling days last month vs. 26 in August 2020.
• Average incentive spending per unit on trucks, SUVs and crossovers in August is expected to be $1,778, down $2,295 from a year ago and down $2,449 from 2019, while the average spending on cars is expected to be $1,979, down $1,600 from a year ago and down $1,627 from 2019.
• Fleet deliveries are expected to total 107,387 in August, down 7.4 percent from August 2020 and off 48 percent from August 2019 on a selling day adjusted basis, J.D. Power said. Fleet volume is expected to account for 10 percent of total light-vehicle deliveries, up from 9 percent a year ago.