U.S. vehicle sales drastically declined in the first quarter of 2020 amid coronavirus-led low demand. During that time, carmakers hinted that second-quarter sales will determine the actual gravity of the COVID-19 pandemic. Well, the verdict is in and it is truly disappointing as major auto biggies reported a huge sales decline in the second quarter.
Sweet Discounts & Easy Financing Fail to Beat Coronavirus Blues
Sagging showroom traffic amid the coronavirus rampage resulted in a sharp drop in sales during the second quarter of 2020. The industry was adversely impacted as production and sales came to a grinding halt, especially in April, amid lockdown measures. With states easing restrictions and car dealers opening stores, May sales improved from April, but declined year over year.
Although automakers resorted to various measures including generous discounts, low interest loans and a digital ramp-up to stoke sales, these offered little respite. Per J.D. Power data, spending on discounts in June was at a record level of $4,441 per vehicle, up 12% year over year. Incentive spending fell slightly in June from a month ago but increased 9.2% year over year to $4,121 per vehicle, on average. The Big 3 Detroit carmakers used extended financing at 0% rate for 84 months to hook customers in these challenging times. Prior to the COVID-19 outbreak, 7% of total sales comprised loan terms for 84 months. The metric rose to 21% during the peak period, per J.D. Power. Though the deals were attractive enough to prop up demand, they were not sufficient to offset factory and dealership closures from the COVID-19 pandemic.
Although e-commerce initiatives helped to generate sales, supply chain distortions and tight inventory resulted in lost sales during the latter half of the quarter. Notably, automaker and dealer inventories fell sharply in May.This underscores how rapidly the coronavirus crisis has dealt a major blow to one of the largest industries of the nation.
Gist of Q2 Sales Numbers by Various Auto Biggies
The top U.S. automaker, General Motors (
GM Quick Quote GM - Free Report) delivered 492,489 vehicles in second-quarter 2020. This marked a 34% year-over-year decrease on a volume basis. While full-size pickup truck sales were up to the mark, the overall sales decline reflects the pandemic’s effect on demand and tight inventories. On a somewhat encouraging note, a few models including Chevy Blazer and Trax, along with some heavy duty vehicles witnessed year-over-year improvement in sales. General Motors currently carries a Zacks Rank #2 (Buy). You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
American-Italian carmaker Fiat Chrysler sold 367,086 vehicles, which contracted 39% year over year. The firm’s popular RAM pickup got severely affected, with sales sliding 35% year over year to 127,684 vehicles. Meanwhile, Jeep Gladiator managed to remain in the black, with sales soaring 174% year over year to 19,568 vehicles. Importantly, the company notified that 20% of new-vehicle sales came from online retailing versus about 1% a year ago.
Sales of Japan-based auto bigwigs Toyota (
TM Quick Quote TM - Free Report) , Honda ( HMC Quick Quote HMC - Free Report) and Nissan ( NSANY Quick Quote NSANY - Free Report) recorded a year-over-year plunge of 34.6%, 15.5% and 49.5%, respectively. Overall, Nissan and Infiniti’s car sales dropped 61% year over year, and truck sales were down 41% from the second quarter of 2019. Sales of Nissan’s electric Leaf and Versa models took a severe beating, both declining 68% year over year. For Toyota, fuel-cell powered Mirai and Sienna models turned out to be the biggest losers, as their sales declined 90% and 76% year over year, respectively, in second-quarter 2020. Honda fared better than closest peers. The firm’s HR-V declined just 2.4% year over year, while sales from Pilot rose 4.7%. Acura’s RDX was up 11.1% year over year. On the flip side, the Clarity model was the biggest loser, with sales tanking 82.9% year over year. Other Japan-based carmakers including Mazda Corp, Subaru and Mitsubishi witnessed year-over-year sales decline of 9.6%, 25% and 58%, respectively.
German auto giant Volkswagen (
VWAGY Quick Quote VWAGY - Free Report) reported a 29% decline in sales volumes. On a positive note, sales of Passat and Arteon models were up 11% and 33%, respectively. Volkswagen’s Porsche reported second-quarter sales of 12,192 vehicles, down 19.9% year over year. Overall sales of BMW AG ( BAMXF Quick Quote BAMXF - Free Report) fell around 40% year over year in the second quarter. While BMW’s 2-series, 8-series and X1 models witnessed huge sales gains year over year, they could not prevent the overall bleeding.
Hyundai’s sales fell 23.7% year over year to 141,722 units, including a 21.9% slide in June. Sales of the firm’s luxury Genesis brand declined 38% year over year in the second quarter. Meanwhile, Volvo had some good news as its June sales numbers were the best since 2006. However, its overall sales during the quarter slid 15.3% from the prior-year period.
Low Fleet Sales & Fear of Second Coronavirus Wave Dim Prospects
Weeks of factory closures and halted production activities due to the COVID-19 pandemic have resulted in a dearth of supply. While aggressive incentives have helped to clean out dealers' lots, the impact of these initiatives have started to fade. Currently, there is little inventory to replace the cars sold by the dealerships.This has left automakers scrambling to again ramp up output and boost low dealer inventories. Almost all the major carmakers have restarted operations but it will take time for the products to roll onto dealer lots. In fact, some assembly plants are still not back to full production.
Fleet sales to rental car companies, corporations and government agencies have been hit hard,and the recovery is expected to be slow as corporate customers are resorting to cost cuts. Some have struggled to stay afloat amid the crisis, as is highlighted by Hertz. The rental car company filed for bankruptcy protection in May. Coronavirus-induced damage has been done quite a lot and the situation is unlikely to improve anytime soon.
Moreover, the recent spike in coronavirus cases in some parts of the United States following the resumption of economic activities heightened fears of a second wave of the infection. This may further dampen the economy and hurt consumer confidence. Rising coronavirus cases in states like Florida, Texas, Arizona and California could spell fresh trouble for new vehicle sales.
Retail auto sales over the extended weekend amid the Independence Day holiday will test the industry’s strength and be the next litmus test for automakers. Moody’s has forecast global auto sales decline of at least 20% year over year in 2020, with North America and EMEA likely to witness major pain. It’s a long road to recovery before achieving the 2019 level of sales, as predicted by Moody’s.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>