Market comeback continues, but record-low supplies darken outlook

The U.S. light-vehicle market continued to roar back in May, but can the rebound last amid dwindling supplies?

Automakers that reported monthly results on Wednesday chalked up increases in the 40, 50, 60 and 70 percent range from pandemic-strapped totals a year earlier.

Ford Motor Co.'s May sales rose 3.7 percent, with the Ford division advancing 3.6 percent and Lincoln up 5 percent, the company reported Thursday.

But sales of Ford's F series, its biggest and most profitable product line, slumped 29 percent in May, reflecting chronically tight microchip supplies that have forced the company to idle output of the large truck for weeks at a time.

With May's strong results, analysts say the U.S. auto industry entered June with a 23-day supply of vehicles -- a record low -- down from a 33-day supply to start May and a 61-day supply at the start of June 2020.

In another sign of the market's broad strength, among companies releasing monthly sales, only Ford and Subaru posted weaker results last month compared to May 2019.

Among the big winners in May was Toyota Motor Corp. Its U.S. sales soared 47 percent as car demand nearly doubled. The advances came despite severe supply-chain disruptions that have sharply depleted the company's inventory heading into June. The company's volume last month was also 9 percent higher than May 2019.

After rising 170 percent in April, Toyota Motor's light-truck sales rose 30 percent in May, in line with the company's first-quarter results, even as dealer stockpiles of core crossovers fall.  

Volume rose 47 percent at the Toyota division and 49 percent at Lexus last month.

But the Toyota brand is starting June with just an 8-day supply of vehicles, while Lexus has a 12-day supply, Bob Carter, executive vice president for sales at Toyota Motor North America, told Automotive News on Wednesday.

The difference for Toyota right now "is throughput," Carter added. "We still have cars coming in."

Honda Motor Co. set an all-time monthly record with May sales of 176,815, a rise of 46 percent. Deliveries rose 76 percent at Acura, and 43 percent at the Honda brand, which set a May volume record on record light-truck deliveries -- 93,362 units -- for any month.

Some U.S. Honda dealers say they are selling key vehicles faster than the company's factories can replace them, and that some models, such as the Ridgeline pickup, are out of stock.

Hyundai and Kia, deftly navigating the supply crunch that has upended the industry as the economy reopens in the wake of the pandemic, set U.S. sales records for the third straight month in May, helped in large part by robust retail demand for light trucks.

Volume jumped 56 percent to 90,017 at Hyundai and 75 percent to 80,298 at Kia, compared with May 2020, when the nation was still hunkered down in the early months of the outbreak. Kia noted "significantly accelerated showroom traffic" over the Memorial Day holiday as consumer activity rebounds and restrictions on households lift.

Hyundai said retail demand also set a monthly record of 84,351 in May, for a gain of 54 percent. Fleet shipments increased 95 percent and represented 6 percent of total volume, or about 5,400 units, Hyundai said.

“Consumer demand across the Hyundai lineup remains strong and we continue to work closely with our manufacturing and supply chain partners to meet this extraordinary demand,” Randy Parker, senior vice president for national sales at Hyundai Motor America, said in a statement.

A Hyundai spokesman said Wednesday the company's new-vehicle stock at U.S. dealers dropped 26 percent to 91,249 cars and light trucks from the start of May to the beginning of June.

Subaru volume rose 8.8 percent to 56,558 last month with Jeff Walters, head of sales for the company's U.S. arm, indicating the global microchip shortage "continues to impact production and inventory levels throughout the auto industry.”

Volvo said May sales rose 39 percent. At Genesis, deliveries jumped 176 percent to 3,728, a monthly record for the luxury upstart. Genesis launched sales of the GV70 crossover last month and the brand's two utility vehicles outsold combined volume of its three sedans. The GV80 set a monthly record with 2,037 units sold.

Mazda, one of the few automakers to post a gain in 2020, said May volume rose 69 percent to 42,187. The rest of the industry releases U.S. sales on a quarterly basis.

U.S. light-vehicle deliveries were forecast to continue a sharp rebound in May – up nearly 40 percent according to projections -- even as inventories continue to fall because of tight microchip supplies. Morgan Stanley analyst Adam Jonas said Thursday the market advanced 42 percent in May and LMC Automotive pegged the month's gain at 43 percent.

The seasonally adjusted, annualized rate of sales in May came in at 17.1 million, Jonas said, well above the forecasts for 16.2 million to 16.7 million from J.D Power/LMC, TrueCar and Cox Automotive. The latest sales pace is down from April’s 18.54 million rate and above the 12.08 million pace tallied in May 2020.

The SAAR has now topped 16 million every month but one -- Novermber -- since Sept. 2020, and hovered above 17 million each of the last three months.

Retail demand remains especially strong, even amid tightening stockpiles, as the economy continues to recover from the pandemic and government stimulus spending juices pockets. LMC Automotive said U.S. retail demand will hit a May record of 1.41 million light vehicles, a 34 percent increase over May 2020. Morgan Stanley reported the retail SAAR was 16.2 million last month.

“Low inventories have still not yet had a material effect on aggregate sales results,” said Thomas King, president of J.D. Power’s data and analytics group. “While inventory is still the primary threat to maintenance of the current sales pace in the coming months, retailers, manufacturers and suppliers have been able to adapt to maintain the sales velocity this year.”

With the sales pace still exceeding the rate at which vehicles are being produced, King added “there is a rising risk to the industry’s ability to sustain the current sales pace in the coming months.”
 

Inventories are severely reduced because of a shortage of microchips that has forced many automakers to idle assembly plants, emptying a growing number of new-car showrooms at the same time.

New-vehicle supplies in mid-May totaled 1.95 million, down from 2.24 million at the end of April and off 42 percent, or 1.4 million units, from May 2020, according to data from Cox Automotive’s vAuto.

The inventory crunch has been uneven among automakers, with Asian and European automakers generally faring better than the Detroit 3, analysts say.

Over the Memorial Day holiday weekend, traditionally a prime shopping period for the industry, Toyota, Honda and Nissan used television advertising in select markets, including New York, to pitch lease deals on key models such as the Toyota Corolla, Highlander and Venza, the Honda CR-V and the redesigned Nissan Rogue.

The average number of days a vehicle sat on a dealership lot before being sold last month was 47, J.D. Power said, down from 95 days in May 2020.
 

With inventories declining and retail demand strong, automakers and dealers continue to dial back on incentives. TrueCar estimates discounts averaged $2,959 last month, down 29 percent from $4,174 in May 2020. J.D Power said May incentives were tracking at $2,957, a decline from $4,825 a year earlier.
 

• There were 26 selling days last month, the same as May 2020.
• J.D. Power estimates 33.4 percent of vehicles will be sold within 10 days of arriving at a dealership in May, up from only 18.2 percent of vehicles sold within 10 days in May 2019.
• Fleet sales are expected to total 167,000 in May, up 114 percent from May 2020 but down 49 percent from May 2019, J.D. Power said. Fleet shipments are expected to account for 11 percent of total light-vehicle volume, up from 7 percent in May 2020.
• The average transaction price for a new vehicle last month is projected to rise 3 percent to $37,584 from a year earlier, and up 1 percent from April, TrueCar projects.

“For the first time, there was marked impact on sales from the part shortages that have been disrupting production. The Detroit 3 were particularly affected, allowing Toyota to become market leader for just the second time on record, as the group outsold General Motors in March. Indeed, it was a great month for Asian brands in general, with Genesis, Honda, Hyundai, Kia and Mazda having their best-ever monthly sales in May. The inventory crisis also affected segments. Pickups accounted for 16 percent of sales, down from 21 percent a year ago, while SUVs gained 2.7 percentage pounts and cars’ share was up by 2 percentage points. Compact non-premium cars gained 1.6 percentage point of share, more than any other segment, as consumers may have compromised on their vehicle choice. It was also a good month for premium vehicles, which accounted for 15 percent of total sales, a record for the month.”

-- Augusto Amorim, senior manager for Americas vehicle sales forecasts at LMC Automotive

“May sales are likely to show great variation across brands, as the supply situation is impacting some nameplates and brands more than others. In addition, comparisons to last year are difficult and misleading in determining relative performance this year. The East and West Coast markets were hit especially hard with COVID-19 lockdowns last April and May, and some brands were impacted more than others. Regardless of the variation, we see two trends emerging from the May numbers: First, the market is slowing from April’s fast pace. Second, thus far, select brands, notably Toyota and Kia, are demonstrating an ability to maintain sales despite extremely low inventory.”

-- Charles Chesbrough, Cox Automotive senior economist

"Vehicles are turning quickly, almost 4 weeks faster than what we saw during this period in 2019. It is a seller's market and consumers who find a vehicle they like will need to move quickly or risk losing out."

– TrueCar analyst Nick Woolard