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US Q1 Vehicle Sales Impress: Will Momentum Sustain in Q2?

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Vehicle sales in the United States are off to a strong start this year, as reflected by the robust first-quarter sales report by most automakers. In fact, quite a few auto biggies enjoyed double-digit sales growth compared with the corresponding quarter of 2020. Demand for vehicles has been strong amid preference for personal mobility, widespread vaccination drive, optimism around federal aid and the gradual reopening of activities.

The U.S. auto industry recorded the best March sales in more than 20 years. Per JD Power, first-quarter retail sales soared 26% primarily on the back of rising popularity of trucks and SUVs. While buyers’ appetite for personal vehicles have remained strong and is likely to continue being so, will the auto industry be able to meet the mounting demand amid global chip crunch and falling inventories? Before we delve into that, below is a gist of sales reports by major automakers for first-quarter 2020.

Rundown of Q1 Sales Figures of Auto Biggies

U.S. auto biggie General Motors (GM - Free Report) delivered 642,250 vehicles in the first quarter of 2021, up around 4% year over year. While retail deliveries surged 19%, fleet sales dipped 35% year over year. The company recorded double-digit year-over-year growth in retail sales across all four brands namely Cadillac, Buick, GMC and Chevrolet. While retail deliveries of Cadillac and Buick rose 43% each, GMC and Chevrolet deliveries increased 23% and 13%, respectively, from the corresponding quarter of 2020. General Motors currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

General Motors’ closest peer Ford (F - Free Report) reported vehicle sales of 521,334 units, up 1% year over year. While truck and SUV sales witnessed year-over-year growth of 5.1% and 14.3%, respectively, car sales slumped 56.7%. Total retail sales grew 23.1% year over year. Ford brand SUV retail sales soared 37%, given high demand for Bronco Sport and Mustang Mach-E.

Japan-based auto biggie Toyota Motor’s (TM - Free Report) sales improved 21.6% year over year to 603,066 units. Sales for the namesake and Lexus division climbed 20.3% and 31.8% year over year, respectively. Sales of the popular Toyota RAV4 grew 17% year over year for the quarter. Importantly, the quarter marked all-time highest sales of alternative powered vehicles.

Honda’s (HMC - Free Report) sales totaled 347,091 units, up 16.2% from the first quarter of 2020. The firm’s namesake and Acura brands’ sales saw year-over-year increase of 14.4% and 32.8%, respectively. Importantly, the firm witnessed record March sales, which strongly aided total sales for the quarter. The firm’s EVs set an all-time monthly record with more than 10,000 deliveries in March.

Nissan’s (NSANY - Free Report) sales surged 10.8% year over year to 285,553 units. Sales of car and trucks totaled 104,447 and 181,106 units, up 5.8% and 14%, respectively, on a year-over-year basis.

Sales of the German auto giant Volkswagen (VWAGY - Free Report) rose 21% for the quarter, led by high demand for Tiguan and Atlas brands, which witnessed year-over-year sales growth of 23% and 35%, respectively.

Stellantis (STLA - Free Report) — formed after the merger of Fiat Chrysler and PSA Group — saw first-quarter sales rise of 5%. Sales of the firm’s hot-selling RAM pickup grew 16% from the corresponding quarter of 2020.

First-quarter 2021 sales of Hyundai jumped 28% year over year, led by robust sales in the last month. Sales of Kia grew 16% year over year for the quarter. Both Hyundai and Kia reported record sales for March. Quarterly sales of Subaru increased 23%, with sales jumping 102% year over year in March itself. The company’s best-selling vehicle, Forester, witnessed a 22% increase in sales for the quarter. Sales of Mazda grew 23% year over year for the quarter, with models including CX-5 and CX-30 soaring 15% and 74%, respectively.

Things Might Not be That Rosy in Q2

Indeed, the numbers reflect that the auto industry has roared back from the pandemic-induced sluggish demand and sales. However, just when things started looking up for the industry, growing microchip shortage is likely to cause major supply demand imbalance in second-quarter 2021.

Various auto biggies are battling semiconductor supply deficit, which is hindering their business operations and forcing them to idle production lines across the world. At a time when automakers were focusing on replenishing the inventory of vehicles, which witnessed a decline due to faster-than-expected vehicle demand, production cuts are further aggravating the scenario. While the companies were able to notch strong sales in first-quarter 2021, low inventories and production halts amid chip concerns may cause the recovery to lose steam.

According to Cox Automotive, inventories are drying up fast and automakers are likely to face acute problems over the next few months through the second quarter. Notably, General Motors ended the quarter with 334,628 units in inventory, down 76,247 units from 2020-end. J.D. Power also acknowledges the risk, and believes that the falling inventories have already started to constrain sales and the recent factory closures may make the matter worse.

As it is, fleet sales to rental car companies, corporations and government agencies had been on the decline for most automakers during the first quarter of 2021. General Motors’ fleet sales were down 35% year over year, and given production stoppages, recovery will rather be slow. Indeed, industry watchers are hoping that fleet sales would pick up with rising vaccination rates, and gradual recovery of economy as well as travel business. However, things appear gloomy for the second quarter at least, both on the retail and fleet sales front. Sales numbers might witness year-over-year growth in second-quarter 2021 as the year-ago period was badly hit by coronavirus woes, which were at its peak at that time. However, sales are likely to drop on a sequential basis.

Amid semiconductor shortage, automakers are focusing on building only their most profitable models. Some companies are manufacturing vehicles sans certain modules amid the shortage of chips. In the absence of a quick solution to this chip problem, which is badly hurting the industry, consumers are likely to have a hard time in finding new vehicles and specific models at dealerships.

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