Sales ride momentum, but inventory holds its grip

Most automakers reporting U.S. sales for January enjoyed solid momentum coming out of a strong holiday season.

Five of the seven companies that posted results tallied gains, while only Ford Motor Co. and American Honda were down. Overall sales for the seven fell 2.1 percent in a month with one less selling day than January 2020.

Among the winners and losers, Kia sales jumped 11 percent on hot crossovers while Ford dropped 8.4 percent as it discontinued car models.

For the industry as a whole, analysts estimated the decline at 3 to 5 percent last month, with retail sales higher year over year and fleet sales still sharply lower but starting to rebound. Many automakers, such as General Motors and Nissan, report sales quarterly.

Forecasters saw reasons for optimism. Demand has remained strong through the worst of the pandemic, and the vaccine rollout is likely to support the trend. On the other hand, already-tight inventories are a growing concern as a global semiconductor shortage now idles some plants.

"It appears that some of the sales momentum from December has carried over into the new year, which is somewhat surprising given that the industry has faced ongoing inventory shortages," said Jessica Caldwell, director of insights at Edmunds.

Deutsche Bank put the annual selling rate at 16.7 million for January, "well above our 16.2 million estimate and up nicely from December's 16.4 million," said Emmanuel Rosner, lead U.S. auto analyst for the bank. Sales for the new year areprojected at 15.8 million, Rosen added, "with solid upside potential from new government infrastructure spending or EV incentives."

Generally, the industry outperformed expectations. Sales remained strong even as incentives fell, since automakers don't need them as much when strong demand is chasing reduced supply. And that's likely to be a recurring theme in the coming months.

"Inventory remains a challenge, both from the COVID-19 plant stoppages to the chip shortages most are now dealing with," said Tyson Jominy, vice president of data and analytics at J.D. Power. The silver lining is that most automakers have a broad portfolio of popular crossovers.

"If a Hyundai dealer doesn't have a particular Tucson, a consumer could be walked up to a Santa Fe or down to a Kona, depending on their needs," Jominy said. "This situation is playing out all over the industry."

Tight supplies also mean higher prices and dealer profits, he added.

The average incentive on a new vehicle was tracking at $3,839 last month, down 7.5 percent from a year earlier, TrueCar said. Total sales were around 1.05 million, TrueCar said.

Among the automakers reporting sales in January, the Hyundai group of Hyundai, Kia and Genesis were among the strongest performers. The key to the group's 7.9 percent combined sales increase was new and heavily freshened crossovers, plus adequate inventories from the U.S. and Korea.

"We feel there is some pent-up demand out there," Randy Parker, senior vice president for national sales at Hyundai Motor America, told Automotive News last week. "Consumers are ready to get back to some level of normalcy as vaccines are rolled out and more shots get into people's arms."

With crossover sales rising 12 percent for the Hyundai brand last month, Parker now has some inventory constraints on the most popular crossovers, including the large Palisade, which is running below a 30-day supply level. Over at Genesis, demand for the newly arrived GV80 crossover is outstripping inventories.

Parker said the automaker has been moving aggressively since the pandemic began to get its Korean-made vehicles out of crowded U.S. ports and onto dealership lots.

While Hyundai would certainly like more units of the hottest vehicles, it also doesn't want to overproduce, Parker said. Dealer profits are at record levels, incentives are down, and even the fleet business is starting to return, allowing a healthy sales balance.

"We did have a little bit of a rebound in fleet," Parker said, "which I take as a good sign."

But at the same time, it's too early to get complacent, he said. "It's not time to let our guard down."