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New-car sales in US are roaring back from earlier pandemic doldrums

October 2, 2020
U.S. demand for light vehicles has roared back since the sudden precipitous decline caused by COVID-19 that started in March and bottomed out at an annualized rate of 8.7 million in April — a 50-year low — with volume declining 46% year-over-year to 717,000 units.
Automakers increased and strategically placed incentives and attractive financing offers on certain vehicles, dealers adjusted to lockdowns by upping their online sales efforts among other things, pricing on used vehicles remained solid and sales came out of the pandemic doldrums faster than most expected.
By the end of the summer, while fleet volume was still flagging, retail vehicle sales were closing in on pre-recession totals.
Although growth is expected to temporarily flatten, with the final months of 2020 running at a 14.5 million-unit annualized rate, that count still is well above April’s trough. Currently, analysts expect the year’s sales to end at 13.9 million units, well below the 17-plus million averaged over the past five years, but above many initial pandemic projections calling for a sub-13 million year.
After the pause, sales are expected to continue sequential growth later in 2021. However, there is more upside opportunity than downside to the 2020 forecast.
One reason is pure momentum. Sales have continually surprised on the high side since the spring, even after incentive spending came back down to Earth after spiking upward 26% year-over-year in April. Since then, there also have been cutbacks in long-term financing options.
What’s mostly moderating short-term expectations are economic headwinds, such as permanent job and wage losses, as well as continued limited availability of new vehicles.
One consequence to the sharp growth in sales since April is that automakers are finding it tougher to restock dealers with new vehicles, leading to an extraordinarily high rate in turnover in recent months to meet demand.
That culminated with August sales volume equaling roughly half of the nationwide inventory the month started with, compared with typical turnover closer to one-third.
Widespread vehicle assembly plant shutdowns in the spring caused inventory to drop to 9-year lows and, based on projections, is not expected to improve much above that level over the rest of the year. Indeed, U.S. light-vehicle inventory ended August at 2.6 million units, down 26% year-over-year and lowest for the month since 2011’s 2.0 million.
There still is enough uncertainty in the current environment that pegging sales over the final four months of the year at a specific annualized rate is even more problematic than usual.
By the numbers, sales can run higher than projected depending on how much above normal dealers can continue turning over inventory — which might become more challenging when the ’21 models, with their mostly higher prices, become widely available in the fourth quarter. But, in theory, if dealers can continue turning over half their inventory, there is enough production in the pipeline for sales to track at an annualized rate of 16 million for the rest of 2020.
Such a surge could lift total 2020 sales to as high as 14.5 million units, and to the extent sales significantly outdo the current outlook, that would lead to an increase in 2021’s current forecast of 15.2 million units.
Still, what cannot be discounted is the possibility of a slowdown. Consumer confidence could continue to fall, and the pace of rehiring might not have enough strength to offset the impact of permanent job losses, including many recently announced corporate layoffs, to keep sales rising through December.
Also, pent-up demand from delayed purchases and deferred lease returns in the second quarter could be starting to play out.
Furthermore, there still is the issue of supply bottlenecks in key segments to contend with.
Pickups are most pinched for supply. August ended with inventory down 44%, and that could worsen depending on how much Ford has to slow production in September and October for changeover to its redesigned ’21-model F-150.
There currently also is extra thin inventory of sport/utility vehicles, due mainly to a slowdown in production of GM’s full-size SUVs, which are being re-engineered for the ’21 model year. However, availability is projected to be adequate by November, possibly sooner.
Ironically, despite severely lean inventory, pickups are propping sales by outdoing all other segments over the past six months.
Volume sales of pickups since March declined only 16% year-over-year, compared with a 28% drop for the entire industry – 31% for the industry less pickups.
Initially, automakers reported that higher manufacturer from the manufacturers, juiced by generous offers of low-interest, long-term financing, propped demand for pickups vs. other vehicles. But sales apparently stayed revved up over the summer from nationwide improvements in housing and construction – the latter thought to have been sparked by housebound homeowners doing more upgrades.
Heading into the year’s fourth quarter, lean inventories of full-size trucks – the majority being large pickups -- could become a more acute issue.
In recent years, combined sales of large pickups, SUVs and vans have been strongest in the fourth quarter. Inventories of full-size trucks are down 35% year-over-year at a time when demand could be about to get stronger.
While it could be good for overall sales, an increase in commercial fleet orders could strain the supply of full-size trucks for dealers in the fourth quarter.
Commercial fleet volume is expected to rebound faster than rental volume, and Fiat Chrysler already announced it was putting more effort into satisfying fleet customers in the second half of the year. If others follow suit, more overall production volume could be allotted to accommodate fleet customers vs. retail.
Ultimately, what could excite consumers and prop shopper traffic -- and maintain high inventory turnover -- is the bevy of all-new and redesigned products still to come for the ’21-model year.
Although some intros were delayed to next year due to the impact from the virus, there was no significant reduction in the originally scheduled number of fresh vehicles coming to dealer lots in 2020 or 2021. In fact, Wards Intelligence analysts expect 18 new or redesigned ’21-model cars and trucks hit the market in 2020, followed by an additional four intros in early 2021.