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Auto Biggies End Q3 on a Mixed Note, Q4 Prospects Gloomy
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Even though a few automakers witnessed a year-over-year uptick in U.S. new vehicle sales in the third quarter, overall sales volume was stuck in low gear. Per US Automotive News, sales volumes inched down 0.4% year over year. The seasonally adjusted annual rate (SAAR) for September came in at 13.7 million, up from 12.38 million in September 2021. To put it in perspective, prior to COVID, SAAR had topped 17 million vehicles for five straight years from 2015 to 2019.
While third-quarter vehicle sales of U.S. auto giants like General Motors (GM - Free Report) and Ford (F - Free Report) increased year over year, Japanese counterparts Toyota (TM - Free Report) and Honda (HMC - Free Report) witnessed sales decline. Italian-American automaker Stellantis (STLA - Free Report) — born out of the merger between Fiat Chrysler and PSA Group — also reported a decline in its third-quarter sales volume, marking the fifth straight decline.
GM Top Selling U.S. Automaker, TM at the 2nd Spot in Q3
U.S. legacy automaker General Motors’ total third-quarter U.S. sales increased 24.3% year over year to 555,580 vehicles. While Buick deliveries skid 27.4% year over year, sales of the other three brands — Chevrolet, GMC and Cadillac — posted double-digit year-over-year percentage gains. Sales of Chevrolet, GMC and Cadillac jumped 29.5%, 23.9% and 49.5% respectively. Apart from the strong retail demand, General Motors’ fleet deliveries also soared 66% in the quarter.
General Motors maintained its title as the top-selling carmaker in the United States in the third quarter of 2022. It managed to reclaim its U.S. sales crown in the second quarter after losing it to Toyota in 2021 and the first quarter of 2022. Toyota had dethroned GM as the top-selling automaker of the nation in 2021 amid the chip crisis. That was the first time that a foreign automaker outsold a Detroit counterpart in U.S. auto sales for an entire calendar year in the industry’s 120-year history.
Japan’s auto-titan Toyota sold 526,017 vehicles, down 7.1% year over year. However, September marked the company’s first monthly sales gain since July 2021. Last month, overall sales increased 17% year over year. However, while volumes of the namesake brand rose 21% in September, sales at the Lexus division declined 4.3%. With that, the Toyota brand snapped a 13-month losing streak, while the Lexus brand sales slid for the eighth consecutive month in September.
GM’s close peer Ford’s third-quarter vehicle sales rose 16% year over year to 464,674 units. However, September was a rough month for the company. Last month, sales contracted 8.7% and 13% at the Ford and Lincoln divisions, respectively, ending three consecutive monthly gains at both brands. While models like Maverick, Bronco and Mustang Mach-E registered gains, other popular models like F-Series, Ranger, Explorer, Bronco Sport and Edge witnessed declines.
Sales volumes at Stellantis dropped 6% year over year to 385,665 units. The automaker's biggest brand, Jeep, reported a decline of 18%. Volumes at RAM contracted 4%. Sales also tailed off at Fiat and Alfa Romeo brands. Meanwhile, Chrysler and Doge brands posted 39% and 22% sales increases, respectively.
TM’s top peer Honda’s U.S. sales decreased 35.8% year over year to 222,050 vehicles during the quarter under review. While truck sales declined 28.8% to 157,549, car sales slumped 48.2% to 65,501 units. Sales were down 17.1% to 79,354 units in September. While sales at the namesake brand tumbled 18%, the Acura brand noted a 13% fall in volumes. With that, deliveries at the Honda division shrunk for 14 straight months, while at Acura, deliveries dwindled for 13 consecutive months.
Other Japanese automakers like Nissan, Mazda and Mazda reported a sales decline of roughly 22%,13% and 3%, respectively. Germany-based counterparts like BMW and Volkswagen held up relatively better, with U.S. sales volumes in the third quarter of 2022 increasing around 4% and 14%, respectively. Sales of South Korean automakers like Hyundai and Kia also rose year over year in the quarter under review.
Inventory is Improving
The first half of 2022 was a rough one for the U.S. auto market as parts shortage choked supplies and low stockpiles put the automakers on edge.Just when industry watchdogs and auto giants were predicting the chip deficit to gradually start easing out from mid-2022, the geopolitical conflict between Russia and Ukraine triggered the second round of global microchip shortage. That forced automakers to yet again slash production plans and halt operations.
So, while the demand for cars was still strong, supplies failed to keep pace with buyers’ appetite for new vehicles. Low inventory levels had been the key issue. September was on track to be the 16th straight month of retail inventory, closing below 1 million vehicles, per J.D. Power and LMC Automotive.
But seems like inventory is finally picking up, as supply chain snafus are gradually starting to ease. Per BofA Securities, the total automotive inventory rose to about 1.43 million units at the end of last month, the highest level since May 2021.
GM exited the third quarter with a vehicle inventory of about 359,292 vehicles, an increase of 111,453 from the second quarter. The inventory also improved three times from that of third-quarter 2021 levels. Toyota ended the quarter with a 20-day supply of cars and light trucks (or 140,810 units) in the United States, implying a slight improvement from the 17-day supply at the end of the second quarter of 2022. Ford’s gross inventory rose to 315,000 at September 2022 end, marking a sharp increase from 236,000 at the end of September 2021 and 259,000 at the end of August 2022.
Affordability is the New Concern
Just when new vehicles seem to be becoming more widely available, it’s to be seen if Americans wish to continue to splurge on these high-ticket items in the face of rising interest rates and recession worries. Since the auto industry is highly cyclical, the demand for vehicles is likely to cool off given the uncertain economic condition. The outlook for the rest of 2022 is getting increasingly cloudy.
Chesbrough — a senior economist at Cox Automotive — said, “It seems likely that much of the pent-up demand from limited supply is quickly disappearing as high interest rates eat away at vehicle buyers' willingness and ability to purchase." Cox Chief economist Jonathan Smoke stated, “The irony for the auto market is that just as the industry is poised to start seeing volumes increase from supply-constrained recession-like low levels, the rapid movement in interest rates is reducing demand.”
With inflation at levels not seen in decades, the Fed has been forced to become more aggressive, cranking up borrowing rates. On Sep 21, the Fed jacked up interest rates by 75 bps for the third time in a row. The rising interest rates will increase the financing costs of vehicles. With borrowing getting expensive and threats of a recession looming large, consumers might be unwilling to pay a heavy premium for cars.
Per Cox, the new vehicle loan rate at the end of the third quarter was 7%, up 2 percentage points. The cost of financing is only expected to keep rising.Macro headwinds such as soaring interest rates, stubborn inflation and looming economic uncertainty have muted the prospects of the auto sector. In fact, largely due to the Fed’s ultra-hawkish stance, Cox slashed the full-year vehicle sales outlook to 13.7 million units, around 9% lower than 2021 levels.
Average purchase prices for new cars rose 6.3% in September to more than $45,000, per J.D. Power. Aggressive rate hikes coupled with high sticker prices of cars is starting to test the affordability of customers. To purchase the same vehicle at the same monthly payment, buyers are now forced to increase their down payment, which is resulting in new affordability challenges. The demand may soften based on such macro challenges.
It's yet to be seen if automakers resort to better incentives, sweeter financing deals and discounts to hold up the demand if customers get unwilling to shell more for these discretionary items. But that would reduce the profits of the auto biggies. So, either way, it’s a tough road for the automakers ahead.
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Auto Biggies End Q3 on a Mixed Note, Q4 Prospects Gloomy
Even though a few automakers witnessed a year-over-year uptick in U.S. new vehicle sales in the third quarter, overall sales volume was stuck in low gear. Per US Automotive News, sales volumes inched down 0.4% year over year. The seasonally adjusted annual rate (SAAR) for September came in at 13.7 million, up from 12.38 million in September 2021. To put it in perspective, prior to COVID, SAAR had topped 17 million vehicles for five straight years from 2015 to 2019.
While third-quarter vehicle sales of U.S. auto giants like General Motors (GM - Free Report) and Ford (F - Free Report) increased year over year, Japanese counterparts Toyota (TM - Free Report) and Honda (HMC - Free Report) witnessed sales decline. Italian-American automaker Stellantis (STLA - Free Report) — born out of the merger between Fiat Chrysler and PSA Group — also reported a decline in its third-quarter sales volume, marking the fifth straight decline.
While GM and TM carry a Zacks Rank #4 (Sell) and #5 (Strong Sell), respectively, STLA, F and HMC are Ranked #3 (Hold) currently. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
GM Top Selling U.S. Automaker, TM at the 2nd Spot in Q3
U.S. legacy automaker General Motors’ total third-quarter U.S. sales increased 24.3% year over year to 555,580 vehicles. While Buick deliveries skid 27.4% year over year, sales of the other three brands — Chevrolet, GMC and Cadillac — posted double-digit year-over-year percentage gains. Sales of Chevrolet, GMC and Cadillac jumped 29.5%, 23.9% and 49.5% respectively. Apart from the strong retail demand, General Motors’ fleet deliveries also soared 66% in the quarter.
General Motors maintained its title as the top-selling carmaker in the United States in the third quarter of 2022. It managed to reclaim its U.S. sales crown in the second quarter after losing it to Toyota in 2021 and the first quarter of 2022. Toyota had dethroned GM as the top-selling automaker of the nation in 2021 amid the chip crisis. That was the first time that a foreign automaker outsold a Detroit counterpart in U.S. auto sales for an entire calendar year in the industry’s 120-year history.
Japan’s auto-titan Toyota sold 526,017 vehicles, down 7.1% year over year. However, September marked the company’s first monthly sales gain since July 2021. Last month, overall sales increased 17% year over year. However, while volumes of the namesake brand rose 21% in September, sales at the Lexus division declined 4.3%. With that, the Toyota brand snapped a 13-month losing streak, while the Lexus brand sales slid for the eighth consecutive month in September.
GM’s close peer Ford’s third-quarter vehicle sales rose 16% year over year to 464,674 units. However, September was a rough month for the company. Last month, sales contracted 8.7% and 13% at the Ford and Lincoln divisions, respectively, ending three consecutive monthly gains at both brands. While models like Maverick, Bronco and Mustang Mach-E registered gains, other popular models like F-Series, Ranger, Explorer, Bronco Sport and Edge witnessed declines.
Sales volumes at Stellantis dropped 6% year over year to 385,665 units. The automaker's biggest brand, Jeep, reported a decline of 18%. Volumes at RAM contracted 4%. Sales also tailed off at Fiat and Alfa Romeo brands. Meanwhile, Chrysler and Doge brands posted 39% and 22% sales increases, respectively.
TM’s top peer Honda’s U.S. sales decreased 35.8% year over year to 222,050 vehicles during the quarter under review. While truck sales declined 28.8% to 157,549, car sales slumped 48.2% to 65,501 units. Sales were down 17.1% to 79,354 units in September. While sales at the namesake brand tumbled 18%, the Acura brand noted a 13% fall in volumes. With that, deliveries at the Honda division shrunk for 14 straight months, while at Acura, deliveries dwindled for 13 consecutive months.
Other Japanese automakers like Nissan, Mazda and Mazda reported a sales decline of roughly 22%,13% and 3%, respectively. Germany-based counterparts like BMW and Volkswagen held up relatively better, with U.S. sales volumes in the third quarter of 2022 increasing around 4% and 14%, respectively. Sales of South Korean automakers like Hyundai and Kia also rose year over year in the quarter under review.
Inventory is Improving
The first half of 2022 was a rough one for the U.S. auto market as parts shortage choked supplies and low stockpiles put the automakers on edge.Just when industry watchdogs and auto giants were predicting the chip deficit to gradually start easing out from mid-2022, the geopolitical conflict between Russia and Ukraine triggered the second round of global microchip shortage. That forced automakers to yet again slash production plans and halt operations.
So, while the demand for cars was still strong, supplies failed to keep pace with buyers’ appetite for new vehicles. Low inventory levels had been the key issue. September was on track to be the 16th straight month of retail inventory, closing below 1 million vehicles, per J.D. Power and LMC Automotive.
But seems like inventory is finally picking up, as supply chain snafus are gradually starting to ease. Per BofA Securities, the total automotive inventory rose to about 1.43 million units at the end of last month, the highest level since May 2021.
GM exited the third quarter with a vehicle inventory of about 359,292 vehicles, an increase of 111,453 from the second quarter. The inventory also improved three times from that of third-quarter 2021 levels. Toyota ended the quarter with a 20-day supply of cars and light trucks (or 140,810 units) in the United States, implying a slight improvement from the 17-day supply at the end of the second quarter of 2022. Ford’s gross inventory rose to 315,000 at September 2022 end, marking a sharp increase from 236,000 at the end of September 2021 and 259,000 at the end of August 2022.
Affordability is the New Concern
Just when new vehicles seem to be becoming more widely available, it’s to be seen if Americans wish to continue to splurge on these high-ticket items in the face of rising interest rates and recession worries. Since the auto industry is highly cyclical, the demand for vehicles is likely to cool off given the uncertain economic condition. The outlook for the rest of 2022 is getting increasingly cloudy.
Chesbrough — a senior economist at Cox Automotive — said, “It seems likely that much of the pent-up demand from limited supply is quickly disappearing as high interest rates eat away at vehicle buyers' willingness and ability to purchase." Cox Chief economist Jonathan Smoke stated, “The irony for the auto market is that just as the industry is poised to start seeing volumes increase from supply-constrained recession-like low levels, the rapid movement in interest rates is reducing demand.”
With inflation at levels not seen in decades, the Fed has been forced to become more aggressive, cranking up borrowing rates. On Sep 21, the Fed jacked up interest rates by 75 bps for the third time in a row. The rising interest rates will increase the financing costs of vehicles. With borrowing getting expensive and threats of a recession looming large, consumers might be unwilling to pay a heavy premium for cars.
Per Cox, the new vehicle loan rate at the end of the third quarter was 7%, up 2 percentage points. The cost of financing is only expected to keep rising.Macro headwinds such as soaring interest rates, stubborn inflation and looming economic uncertainty have muted the prospects of the auto sector. In fact, largely due to the Fed’s ultra-hawkish stance, Cox slashed the full-year vehicle sales outlook to 13.7 million units, around 9% lower than 2021 levels.
Average purchase prices for new cars rose 6.3% in September to more than $45,000, per J.D. Power. Aggressive rate hikes coupled with high sticker prices of cars is starting to test the affordability of customers. To purchase the same vehicle at the same monthly payment, buyers are now forced to increase their down payment, which is resulting in new affordability challenges. The demand may soften based on such macro challenges.
It's yet to be seen if automakers resort to better incentives, sweeter financing deals and discounts to hold up the demand if customers get unwilling to shell more for these discretionary items. But that would reduce the profits of the auto biggies. So, either way, it’s a tough road for the automakers ahead.