Market slide continues in June, Q2

The U.S. light-vehicle market slid again in June, capping a weaker second quarter as global parts shortages and shipping woes continue to hobble output at automakers, leaving showrooms largely empty of new cars and light trucks for a year now. Sales dropped 21 percent in the second quarter and 18 percent in the first half.

But there are signs the market is getting some traction.

The seasonally adjusted, annualized rate of sales tallied 13.22 million in June, Motor Intelligence said, near the bottom of the range of analysts' forecasts of 13 million to 13.8 million, and a modest rebound from May's 12.81 million rate, the lowest of the year so far.

Yet the June SAAR, the second lowest of the year now, was down sharply from June 2021's 15.43 million pace. The SAAR has topped 15 million only once -- in January at 15.23 million -- since June 2021.

Ford Motor Co., which racked up a gain of 32 percent in June, said the overall market dropped 11 percent during the month.

Sales jumped 31 percent at the Ford division and 41 percent at Lincoln. Ford division volume had decreased year over year for four straight months, and Lincoln ended a streak of 12 consecutive monthly declines year over year.

Ford, which outperformed the market in June and the second quarter, reported combined deliveries of the F-Series, Explorer and redesigned Expedition and Navigator SUVs represented just over 56 percent of the automaker's total sales last month. Even Ford's car deliveries, a weak spot in recent years with the discontinuation of multiple models, contributed marginally to the positive June tally, rising 62 percent to 4,651, with nearly all of those sales represented by the Mustang.   

Consumer demand for new vehicles remains strong, Ford said, with the number of its retail sales coming from previously placed orders still at a record pace of about 50 percent in June.

Ford said it had a 51-day supply of vehicles at the close of June -- or 297,000 units, vs. 236,000 at the end of May and 162,000 at the end of June 2021 -- and nearly in line with the industry standard of 60 days.

Volume slid 15 percent to 578,507 in the second quarter at General Motors, but it was enough for the automaker to reclaim the U.S. sales crown from Toyota Motor Corp.

Deliveries dropped 11 percent at Chevrolet, 14 percent GMC, 56 percent at Buick and 6.7 percent at Cadillac in the April-June period. GM's U.S. sales have now declined four consecutive quarters, though volume has increased sequentially three straight quarters and it expects to gain market share for the third consecutive quarter.

The automaker, citing "strong" second-quarter production, said it ended June with 247,839 vehicles in U.S. dealer inventory, including cars and light trucks in transit to showrooms.

GM's second-quarter vehicle wholesale shipments were negatively impacted by ongoing semiconductor shortages and other supply chain disruptions, mostly in June. The company said it is holding 95,000 vehicles assembled without certain components in storage until they are completed, which it said will occur during the second half of the year.

In the first half, GM's U.S. sales dropped 18 percent, though many of the company's most profitable vehicles -- the Chevrolet Silverado, Suburban and Tahoe, and Cadillac Escalade and GMC Yukon -- fared better.

Toyota Motor, which overtook GM, the longtime market leader, in 2021 and again in the first quarter, said June deliveries dropped 18 percent to 170,155, with second-quarter volume falling 23 percent to 531,105. June sales dropped 18 percent at the Toyota division, the brand's 11th straight monthly decline, and 15 percent at Lexus, its fifth consecutive drop.

Several of the Toyota division's top sellers posted double-digit declines in June: Camry, off 27 percent; Highlander, down 34 percent; and Tacoma, off 14 percent.

Stellantis' second-quarter sales dropped 16 percent, with double-digit declines at every brand but Chrysler, where deliveries surged 95 percent to 36,934, behind a 143 percent gain in Pacifica volume. Deliveries slid 11 percent at Jeep and 27 percent at Ram in the latest period.

"We continue to see strong demand for our vehicles," said Jeff Kommor, head of U.S. sales operations at Stellantis FCA US arm. "While there are certainly industry supply constraints, our dealers are working hard to satisfy the needs of every customer.”

June sales dropped 54 percent at Honda Motor Co., with the Honda division down 54 percent, where car deliveries slumped 61 percent, and Acura off 55 percent. Honda brand volume has dropped 11 straight months, though the company is still benefitting from robust demand and some of the lowest incentives in the industry. 

“With strong turn rates of up to 90 percent for core Honda and Acura products, it’s clear that success is a relative term in today’s business environment and sales volume is not the best measure of true customer demand,” Mamadou Diallo, vice president of auto sales for American Honda Motor Co., said in a statement.

Second-quarter volume skidded 39 percent to 183,171 at Nissan Motor Corp., its biggest decline over the last four quarters, with the Nissan division down 38 percent and Infiniti off 41 percent.

Volume dropped 13 percent at Hyundai and 4.9 percent at Kia last month behind weaker car deliveries. It was the fourth straight monthly decline for both automakers, though Hyundai's volume -- 63,091 cars and light trucks -- set a high for 2022, even with retail volume down 5.5 percent.

Hyundai said it finished June with 17,922 cars and light trucks in U.S. inventory, down from 18,641 to close May and 67,992 at the end of June 2021.

“Our dealers are selling everything they get, and we are continuing our efforts on growing market share,” said Randy Parker, senior vice president of national sales at Hyundai Motor America.

In a small sign the market is getting some traction, Subaru snapped a 12-month streak of declines with June sales of 43,175, up 0.7 percent. Mazda's U.S.  volume skidded 54 percent in June, the company's third consecutive decline. At Volkswagen, second-quarter sales skidded 34 percent to 78,281, with cars off 48 percent.

Among other luxury brands, second-quarter volume dropped 18 percent at BMW, 28 percent at Audi and 8.2 percent at Bentley. Porsche bounced back from a 25 percent drop in first-quarter volume with a 2.8 percent gain in the April-June period. Genesis' deliveries rose for the 19th straight month with June volume advancing 11 percent to 4,506.

Volvo reported June sales of 8,434, a decline of 31 percent from a year earlier. “Demand for our cars remains strong but inventory challenges continue,” said Anders Gustafsson, CEO of Volvo Car USA.

Mercedes-Benz and Jaguar Land Rover will report second-quarter sales later this month.

Tesla Inc. is the only automaker projected to post higher second-quarter and first-half sales.

The market was expected to contract 7.5 percent to 12 percent in June, according to forecasts from LMC Automotive. J.D. Power, Cox Automotive and TrueCar, with second-quarter deliveries projected to drop by double digits. June marked the 12th consecutive month of year over year declines, according to J.D. Power.

Automakers and analysts, citing the dearth of inventory, have been cutting their outlook for 2022 sales, from a previous high of 16.5 million, down to 14.3 million (TrueCar) to 15 million (LMC Automotive) now, meaning the market will likely decline this year absent a second-half rebound. U.S. sales of new cars and light trucks rose 3.3 percent to 15.06 million in 2021, a slight recovery from 2020 when the pandemic curtailed volume.

While consumer demand remains considerably higher than supply, rising interest rates, affordability, weak consumer sentiment and inflation pose growing threats to the outlook. Wobbly equity markets and record-high gasoline prices are also giving some consumers pause, analysts and dealers say, though household finances remain strong.

"With each additional month of inventory constraints, pent-up demand for new vehicles is building ever larger — and that demand will insulate the industry from the effects of these economic headwinds," said Thomas King, president of J.D. Power's data and analytics division.

Record-low stockpiles continue to be a drag on the market. What new cars and light trucks are on the ground or allocated in the next several months are largely already sold, dealers say. No one is certain when the chip shortage will lift completely, only that the recovery will be slow and likely stretch into 2024.

June marked the eighth-straight month that retail inventory closed below 900,000 cars and light trucks, J.D. Power and LMC Automotive said.

Supply varies widely by brand and model and region. Kia, Honda, Subaru, Toyota, Lexus, Land Rover, BMW and Porsche had the leanest supplies last month, according to Cox Automotive, while Ram, Volvo, Dodge, Jeep, Audi, Buick, Cadillac and Infiniti had the highest days-supply.

Among the 30 most popular models, the Honda HR-V and Civic, Kia Forte, Toyota Corolla, 4Runner, Camry and RAV4, and Nissan Altima, are the most scarce, according to Cox Automotive data, while the Ram 1500, Jeep Compass, Ford F-150, Escape and Explorer, Chevrolet Silverado, Hyundai Santa Fe and Toyota Tacoma are more widely available. (See nearby chart.)

At Berger Chevrolet in Grand Rapids, Mich., Fleet Manager Bob Evans said the order book for the 2023 model year has already been closed, with more than 700 vehicles presold. "Demand is still strong but supply is going to be weak for a while," Evans said.

Asian automakers, generally more dependent on imports from Japan and South Korea, have also been hobbled by recent COVID lockdown measures in China that curbed vehicle and parts production and shipping.

In North America, light-vehicle output has dropped this year through May at five automakers -- BMW Group, Honda, Nissan, Volvo and Toyota, according to the Automotive News Data Center, while production has risen by 10 percent or more at Hyundai Motor Group, GM, Ford and Stellantis. Output has increased 8.5 percent at Subaru, 6.7 percent at Mercedes-Benz and just 2.5 percent at Volkswagen Group.

Average incentive spending per new vehicle last month is expected to fall to $930 from $2,291 in June 2021, J.D. Power projected, while TrueCar estimates incentives fell 57 percent to $1,186 per car and light truck last month. (See nearby charts).

With supplies tight and consumer demand still strong, new-vehicle prices set records in June, with the average transaction price expected to reach $45,844 — a 15 percent increase from June 2021, J.D. Power and LMC Automotive said.

Still, there are more signs that rising interest rates and new-vehicle prices are squeezing some consumers. The average monthly finance payment in June was on pace to hit a record high of $698, up $79 from June 2021, translating to a 13 percent increase in monthly payments from June 2021, and just below the 15 percent increase in transaction prices, LMC and J.D. Power said.

• There were 26 selling days last month v. 25 in June 2021.
• Incentive spending as a percentage of the average MSRP in June was expected to fall to a record low 2 percent, down 3.4 percentage points from June 2021, J.D. Power said.
• Average incentive spending per new-vehicle on trucks, crossovers and SUVs in June was expected to be $971, down $1,266 from a year ago, while the average discount spending on cars is expected to be $869, down $1,592 from a year ago, J.D. Power and LMC Automotive predicted.
• 12.7 percent of consumers who financed a new vehicle purchase in June committed to a monthly payment of $1,000 or more — the highest level that Edmunds has ever recorded — compared to 7.3 percent in June 2021, 4.6 percent in June 2019 and 2.1 percent in June 2010.
• The average amount financed for new vehicles hit a near-record level in the second quarter of 2022, rising to $40,602 — compared to $39,726 in the first quarter and $36,215 in the second quarter of 2021. Edmunds says the first and only other time that the average amount financed for new vehicles surpassed $40,000 was the last quarter of 2021, when the average APR was just 4.1 percent.
• Fleet shipments are expected to total 167,700 last month, up 1.9 percent from June 2021 on a selling day adjusted basis, J.D. Power said, and fleet volume is expected to account for 15 percent of total light-vehicle sales, up from 12 percent in June 2021.

"Low interest rates used to be one of few reprieves for car shoppers amid elevated prices and supply shortages. But the Fed rate hikes this year are making finance incentives far costlier for automakers, and consumers are starting to feel the pinch. Although there appears to be a steady stream of affluent consumers willing to commit to car payments that look more like mortgage payments, for most consumers the new car market is growing increasingly out of reach."

-- Jessica Caldwell, executive director of insights at Edmunds

"The auto outlook is now hampered by both supply and demand issues, as consumers struggle globally with high inflation and low vehicle inventory. Nearly 30 million units of demand have been lost since the beginning of the pandemic and much of that may end up being a permanent loss."

-- Jeff Schuster, president of Americas operations and global vehicle forecasts at LMC Automotive