Several major automakers reported weaker sales in May but the results signal the market continues to slowly recover from severe restrictions on business and consumer activity because of the COVID-19 outbreak, with automakers now scrambling to boost output to replenish falling stockpiles.
U.S. deliveries fell 26 percent at Toyota Motor Corp., 17 percent at American Honda, 13 percent at Hyundai, 19 percent at Subaru, 24 percent at Kia, 2.5 percent at Volvo and just 1 percent at Mazda last month.
With fleet volume depressed, light-truck and retail sales are driving the rebound.
"What was becoming evident in late April became clear in May: The automotive retail market is recovering thanks to retail demand that re-emerged after being locked out of the market during the height of the crisis," said Zo Rahim, an analyst with Cox Automotive.
Sales fell at every major automakers last month, analysts say. While most Asian brands and Volvo continue to report monthly results, the rest of the industry now releases sales quarterly.
Across the industry, light-vehicle volume fell 30 percent last month, Morgan Stanley analyst Adam Jonas said in a research note Wednesday, slightly better than forecasts for a 33 percent decline from Edmunds, ALG and Cox Automotive, and an improvement from the estimated 50 percent decline in April.
Volume fell 39 percent in March, according to J.D. Power.
The seasonally adjusted, annualized rate of sales last month came in at 12.17 million, according to Motor Intelligence, above the range of forecasts -- 11.4 million to 11.8 million -- from Edmunds, ALG and Cox Automotive, but substantially lower than the 17.4 million rate in May 2019. The SAAR fell to 8.6 million in April and stood at 11.33 million in March.
Deliveries dropped 27 percent at the Toyota division and 19 percent at Lexus, much smaller declines than the drop of 35 percent or more that both brands suffered in April and March.
American Honda said volume slipped 16 percent at the Honda brand and 24 percent at Acura. Both brands posted declines of 54 percent or more in April.
May sales fell 19 percent at Subaru, after a 47 percent dropoff in April and March.
The small dip in Mazda's May volume followed a 45 percent decline in April and a 42 percent drop in March. The company's light-truck volume, up 10 percent, received a big boost from the all-new CX-30 crossover, which tallied sales of 3,583.
Hyundai's results, an improvement over April's 39 percent decline, are another sign the retail market is coming back. Hyundai's car deliveries skidded 44 percent to 16,456 while crossover sales, a strength for the brand, rose 12 percent to 41,163.
Retail volume rose 5 percent despite the pandemic while fleet deliveries dropped 79 percent, representing just 5 percent of all volume, Hyundai said.
Randy Parker, vice president of sales for Hyundai Motor America, credited the "remarkable" rebound in retail sales to dealer initiatives, new digital retail tools and the right customer offers, which included some of the industry's lowest incentives, according to ALG. (See chart below.)
“We’ve also equipped our dealers with resources to ensure we are taking the necessary precautions to keep vehicles and facilities clean," Parker said. "Our inventory pipeline is in a good place as Hyundai Motor Manufacturing Alabama has been up and running since May 4. We’re optimistic for the months ahead.”
Despite challenges posed by coronavirus-related shutdowns, Volvo credited new virtual showrooms and other programs for the company's successful embrace of "a new normal."
"Sales have not fully returned to normal," said Anders Gustafsson, CEO of Volvo Car USA, but he added strong retail demand supported overall volume last month.
Shopping and buying
Fiat Chrysler Automobiles saw encouraging signs in May with U.S. retail sales falling 15 percent to 128,673, enough to beat internal forecasts, according to a letter to dealers obtained by Automotive News. The company also appeared to benefit from some of the industry's highest incentives last month. (See chart below.)
Retail deliveries of the Wrangler, one of Jeep's top sellers, rose1 percent, according to the letter.
FCA's U.S. sales head, Jeff Kommor, said in the letter that FCA sold 40,000 more vehicles in May than it did in April. The company's first-quarter U.S. sales dropped 10 percent to 446,768, with only the Ram brand posting a gain during the three-month period.
Consumers are "not only shopping, but also buying," Kommor said, citing the company's new digital retail platforms and a "number of competitive pricing options designed to help those who want or need a vehicle while navigating through these unprecedented times."
Phil Bivens, president of FCA's national dealer council, said "so many dealers had to move quickly into a more advanced era of digital retailing to overcome state mandates that shut down so many of our showrooms.”
“It is in times of great adversity," Bivens said in the letter, "that our long-standing and strong dealer body pulls together to make connections with our customers and efficiently sell them quality vehicles - all while conducting business in conditions we could never have imagined.”
Slow and spotty
With U.S. unemployment rising and consumer confidence taking a sharp dive in May, the industry’s recovery from a bottom in early April is expected to be slow and spotty.
“The key question for the market going forward is whether these modest but steady sales gains will continue into June or does the sales recovery stagnate,” said Charlie Chesbrough, senior economist at Cox Automotive.
J.D. Power said the sales recovery essentially plateaued in the several weeks leading up to Memorial Day and last week cited several coronavirus-related factors behind the market’s stall.
- Many lessees have extended terms of current leases and remain out of the market.
- Older consumers continue to hunker down and are also largely avoiding showrooms.
- Affordability concerns are prompting more consumers to consider used rather than new vehicles.
- Growing inventory shortages, notably light trucks, as idled assembly plants slowly restart after months of shutdowns.
- The absence of significantly higher discounts around the Memorial Day holiday, a key period for industry sales.
Tyson Jominy, an analyst at J.D. Power, said Tuesday the final week of May finished on par with the early part of the month.
“The resumption of business and leisure activities blunted the usual Memorial Day traffic,” Jominy said. "May was a damn good time to be and work outside."
Lower fleet shipments, resulting from fewer orders from rental car companies as a result of the slump in business and leisure travel, will also be a drag on industry volume for months.
Barclays analyst Brian Johnson said inventory shortages – an estimated 600,000 cars and light trucks in June alone -- will continue through August.
“We continue to see significant risks on the supply side with almost inevitable inefficiencies arising from restarting vehicle programs in North America simultaneously” Johnson said in a note Monday.
Johnson said the large pickup segment – the biggest source of profits for the Detroit 3 -- is at critical risk of supply shortages, and estimates large pickup inventory fell to 44 days at the end of May from 88 days at the end of May 2019.
ALG estimates average incentives rose to $4,526 last month, an increase of 21 percent from May 2019’s $3,732 level. With the exception of Hyundai, every manufacturer raised incentives last month 10 percent or more, ALG data show. (See chart below.)
J.D. Power said Tuesday May average incentives were tracking at $4,782 per vehicle, or $904 above May 2019 levels.
With the halting restart to many North American assembly plants, tight supplies are prompting some automakers to curtail deals or shift tactics.
ALG analyst Eric Lyman said falling inventories of key models, notably light trucks, will allow automakers to dial back on deals but redirect discounts from national to regional and local markets based on supply.
“We expect the highly incentivized and in-demand SUVs and trucks to be affected more than other segments,” said Lyman.
- There were 26 selling days last month, the same as May 2019.
- Average transaction prices rose 4.6 percent, or $1,607, to $36,511 in May, from a year ago, but dropped 1.7 percent, or $639, compared with April 2020, ALG said.
- The average annual percentage rate on new financed vehicles averaged 4 percent in May, compared to 4.3 percent in April and 6.1 percent in May 2019, Edmunds said Tuesday.
- 0 percent finance offers dipped slightly in May compared to April, but still remained at near-record levels, Edmunds said. Such deals represented 24 percent of all new financed purchases in May, compared to 25.8 percent in April.
“There’s still a long road to recovery ahead, but May auto sales are a really encouraging sign for the industry. The unprecedented deals broadcast by automakers and dealers really did the trick in getting more consumers to reenter the market, social distancing and all.”
-- Edmunds analyst Jessica Caldwell
Vince Bond contributed to this report.