Supply crunch still hampering sales recovery

Sales of cars and light trucks continue to recover from the deep downturn this year but were held back in August by tight inventories.

In addition, the closely watched numbers compared unfavorably with year-earlier results because August 2019 sales benefited from the inclusion of the Labor Day weekend.

The lingering effect of this year's auto factory shutdowns, which halted supply for as long as eight weeks, is still being felt in low dealership inventories, even as shipments arrive daily. Toyota, Honda and Subaru all reported double-digit percentage declines on reduced inventory.

Faring better last month were brands that are less dependent on North American factories. Hyundai, Kia and Mazda reported only single-digit declines in August, and Volvo posted a sales gain for the month. All four brands benefited from adequate supplies of imported models.

The overall industry outlook remained positive, despite economic problems resulting from the pandemic and short-term inventory shortages, analysts said."August sales demonstrate the industry's ongoing recovery since it hit the bottom back in April, but the numbers are still lower than normal," said Jessica Caldwell, a senior analyst at Edmunds.

"August is typically one of the strongest sales months of the year, but dealers were limited in terms of inventory, particularly for popular segments like trucks," Caldwell said.

Ten auto brands reported U.S. sales in August. The rest report quarterly.

Toyota group sales fell 23 percent last month, with the Toyota brand down 25 percent on reduced inventories and Lexus down 9 percent. Sales at American Honda, also heavily reliant on North American manufacturing, fell 22 percent. Subaru sales were down 17 percent on tight crossover supply.

"The good news is we're starting to see more inventory trickle in, so perhaps there will be better sales opportunities for consumers toward the end of the year —particularly if interest rates remain low, as expected," said Caldwell.

Korean automakers have been able to tap into a steady flow of vehicles from Korea, offsetting continuing weakness in their U.S. factory output. Hyundai sales fell 8.4 percent last month and Kia's sales were off 6 percent. Volvo, which imports most of its U.S. vehicles, saw sales rise 13 percent.

Inventory constraints hurt sales at the Korean luxury brand Genesis in August, which reported a 23 percent decline. Regulatory delays for two key vehicles also were a factor.

But the tighter supplies are helping to push up year-on-year transaction prices for popular vehicles. ALG estimates the average transaction price was $36,327 last month vs. $34,957 in August 2019.

"Vehicles are continuing to sell at higher transaction prices when compared to the prior year even amidst the pandemic," said Eric Lyman, chief industry analyst for ALG. "For the second month in a row, since March, automaker revenue for new-vehicle sales will be up month over month by almost 6 percent."

While supply issues are pushing prices up, more plentiful models are benefiting from targeted factory incentives, fueling a volume recovery.

"This is a positive sign for the auto industry as targeted incentive spending by automakers continues to fuel the recovery for new-vehicle sales," Lyman said.

U.S. light-vehicle sales were forecast to fall about 20 percent in August, based on estimates from Cox Automotive and LMC Automotive.

Other good news was the improving seasonally adjusted annual rate for sales, a key indicator of industry health.

The seasonally adjusted annual sales rate came in at 15.18 million, Motor Intelligence said, slightly above forecasts. It marks the fourth-straight month of recovery since the anemic 8.74 million recorded in April — but the rate is still well below the 17.1 million sales pace of August 2019.

"The selling rate in August demonstrates that there is base-level demand for new vehicles and dealers are finding ways to close deals and deliver product," Cox Automotive Senior Economist Charlie Chesbrough said. "The market is far from recovered, but considering the overall economic conditions, it is healthy."

Average incentives fell to $4,105 last month from $4,154 in August 2019, J.D. Power said. ALG estimates incentives last month rose 5 percent to $3,902 from $3,716 in August 2019.

David Phillips contributed to this report.