Recovery gains traction

U.S. auto sales fell in the third quarter, but September increases at General Motors, Ford Motor Co., Toyota Motor Corp., Honda Motor Co. and Hyundai -- driven by strong truck demand -- provided fresh signs that the market continues to rebound after being battered by the coronavirus.

Overall, volume dropped 9.5 percent in the last quarter and remains off 18 percent for the year.

GM said sales improved “sequentially” each month since mid-year. In a rare disclosure of monthly results, the automaker said September volume rose from year-earlier levels. Toyota Motor chalked up a 16 percent September gain, while Hyundai rose 5.5 percent for its second advance in three months.

September numbers were boosted, however, by the same reporting quirks that scarred August’s figures. There were two more selling days last month than in the year-earlier period. And Labor Day weekend sales were counted in September this year instead of the previous month.

The seasonally adjusted annual sales rate for September came in at 16.51 million, the highest figure since the pandemic hit in March and well above forecasts, Motor Intelligence said.

The SAAR tallied 15.2 million in August and 17.3 million in Sept. 2019 and has inched up every month since bottoming out at 8.74 million in April.

"Industry and GM sales rebounded significantly in September, finishing the month with year-over-year sales increases," GM, the nation's No. 1 seller, said in a statement.

Morgan Stanley analyst Adam Jonas, citing strength in the September tally and strong light-truck demand, raised his 2020 sales forecast to 14.5 million from 14 million units.

Automaker by automaker

Quarterly deliveries at GM dropped 9.9 percent. Volume fell 11 percent at Chevrolet, 5.7 percent at GMC, 2.9 percent at Buick and 18 percent at Cadillac. The automaker did not provide a figure or brand breakdown for its September increase.

Ford Motor Co. said Friday third-quarter volume fell 4.7 percent with deliveries off 4.8 percent at Ford and 1.4 percent at Lincoln.

Mark LaNeve, head of U.S. marketing, sales and service at Ford, which no longer releases monthly sales results, said in an interview the automaker's overall volume rose in September, and added that combined August and September deliveries edged up about 1.5 percent compared to 2019 levels. 

Ford's fleet business dropped 14 percent last quarter but was up significantly from the second quarter.

Car demand, down 38 percent at Ford in the quarter, and a cornerstone of the industry's fleet business, remains a drag on the company and several other automakers, even as they race to replace sedans with new crossovers and SUVs.

FCA US said third-quarter volume was down 10 percent, with strong retail sales failing to offset "ongoing softness in fleet purchases."

Sales declined 9 percent at Jeep, 2 percent at Ram, 31 percent at Dodge and 53 percent at Fiat. Only the Chrysler brand, up 8 percent, and Alfa Romeo, with an increase of 17 percent, posted gains during the quarter, FCA said. U.S. retail sales of the Ram pickup truck rose 15 percent last quarter.

“Jeep and Ram are hot, and we continue to prioritize deliveries to our dealers who are asking us to ship as many vehicles as we can build,” said Jeff Kommor, head of U.S. sales for FCA US.

Third-quarter volume dropped 11 percent at Toyota Motor, with sales off 13 percent at the Toyota division but up 2 percent at Lexus. The September increase was fueled by a 14 percent advance at Toyota, aided by strong Highlander and RAV4 demand, and a 31 percent jump at Lexus.

Honda Motor, behind double-digit percentage gains at the Honda and Acura brands, said volume rose 12 percent last month, capping a quarter that saw deliveries slip 9.5 percent.

“September marks a high-water mark for Honda sales this year with double-digit gains and our first month in positive territory since the pandemic began,” said Dave Gardner, executive vice president of national operations at American Honda.

At Nissan Motor Co., sales plunged 32 percent last quarter. Deliveries slumped 33 percent at the Nissan division and 30 percent at Infiniti.

Hyundai reported third-quarter U.S. sales of 170,828, a 1 percent decline from a year earlier. In September, volume rose 5 percent, behind a 21 percent gain in retail deliveries.Third-quarter retail volume tallied 161,254, a 7 percent increase over 2019, the company said..

Hyundai has countered lower fleet business with stronger retail sales driven by an expanded crossover lineup, even as it spends less on incentives. (See chart below.) The company said fleet sales dropped 67 percent in September and represented 5 percent of overall volume.

The Volkswagen brand reported a third-quarter decline of 7.6 percent.

Among other automakers that report monthly results, September sales rose 29 percent at Mazda and 16 percent at Subaru, which said it set a record for the month with 60,103 deliveries.

At Mitsubishi, U.S. sales edged up 1.5 percent last quarter.

At other luxury brands, Sept. volume rose 10 percent at Volvo and Audi said third-quarter volume fell 16 percent.

Hurdles

U.S. light-vehicle deliveries fell 22 percent to nearly 9 million through August, Cox Automotive and J.D. Power say.

The market continues to rebound from the coronavirus pandemic, though low inventories, tighter credit standards for some consumers and high unemployment continue to be a drag.

Cox Automotive estimates industrywide inventories currently stand at just 57-58 days, below the industry’s longtime 60-day benchmark.

Incentives

Reflecting lean stockpiles, September incentive spending is expected to fall $250 to $3,964 per vehicle -- the lowest level since July 2019 and the first time this year it has dropped below $4,000 -- J.D. Power said. ALG estimates incentives averaged $4,001 last month, a 5.3 percent increase over Sept. 2019. (See chart below.)

Headwinds

In addition to lean inventories, the industry faces other headwinds heading into the fourth quarter. The prospect of another wave of COVID-19 infections, coupled with the start of flu season, could undermine the rebound.

Early Friday, President Donald Trump disclosed he and his wife, First Lady Melania Trump, tested positive for the coronavirus, a development that rattled global financial markets, and could upend consumer sentiment while adding more apprehension about the trajectory of a pandemic that has killed more than 207,000 Americans and devastated the economy.

And the outcome of talks in Washington on another round of economic stimulus, as well as uncertainty surrounding the presidential election, could also weigh on household spending.

Fleet factor

While retail demand has rebounded, fleet shipments -- an industry bright spot for several years -- remain depressed as rental agencies continue to curtail or cancel orders.

Fleet volume is not expected to fully recover until mid to late 2021, when business and leisure travel resume, pending the broad rollout of a vaccine, some analysts argue.

“The last piece of the puzzle for the industry’s recovery is fleet sales,” said Edmunds analyst Jessica Caldwell. “Daily rental companies have understandably reduced or delayed orders as Americans continue to stay at home rather than embark upon business or air travel. It will likely take a bit longer for this side of the business to make as dramatic a comeback as its retail counterparts.”  

Nuts, bolts

• There were 25 selling days last month vs. 23 in Sept. 2019.
• Lease penetration in September is expected to be 26.5 percent, a decline of 2.8 percentage points from September 2019 and the lowest September level since 2014, J.D. Power said.
• 2021 models represent just 3 percent of available inventory, Cox Automotive said this week, compared to 25 percent of dealer stockpiles that were 2020 models in Sept. 2019. Plant shutdowns have delayed many products and limited availability of others.
• Average transaction prices are projected to rise 3.5 percent, or $1,223, to $36,541 in September from a year ago, and up 0.4 percent, or $156, compared to August 2020, ALG estimates.  
• Fleet sales are expected to total 130,300 last month, a decline of 52 percent from September 2019, J.D. Power said. Fleet volume is expected to account for 10 percent of total light-vehicle sales last month, down from 20 percent a year ago.

Quotable

“Large truck sales continue to spike as many consumers gravitate toward home improvement projects to enrich their home environment where they are also working and spending more of their leisure time.”
         -- Eric Lyman, chief industry analyst at ALG

“Third-quarter sales make at least two things apparent: Most of the doomsday scenarios forecasted at the beginning of the pandemic fortunately did not hold true, and the American consumer stepped up to become one of the many heroes in this chapter of resilience for the automotive industry. Consistently lower interest rates encouraged new-car buyers — who were less likely to be financially hindered by the economic fallout of the pandemic — to pull the trigger on a purchase.”
         -- Jessica Caldwell, Edmunds’ executive director of insights

“Despite some uncertainties that could affect performance in Q4, one notable tailwind could be the return of customers to the market that took advantage of lease extension offers due to disruption from COVID-19. These customers that have traditionally replaced their vehicle at the end of their lease have been waiting on the sideline, getting ready for their next purchase."
         -- Thomas King, president of the data and analytics division at J.D. Power

Michael Martinez contributed to this report.