Detroit 3 gain big market share as COVID-19 infects sales, April looks worse
With March auto sales infected by the coronavirus, Detroit automakers are bracing for an unprecedented spring of empty showrooms as analysts predict 2020 sales could be down as much as 30% from forecasts.
The U.S. industry's first quarterly sales reports since the the COVID-19 crisis shut auto plants and many showrooms delivered declines for every automaker. Declines were particularly acute in the last week of March as 80 percent of the country — 39 states —issued shelter-in-place orders, resulting in sales declines of 61%, according to forecasting firm J.D. Power.
New York City and Detroit were the hardest hit metro markets. Yet, even as Fiat Chrysler Automobiles NV reported sales declines of 10% for the first quarter of the year and General Motors Co. was off 7%, the Detroit Three were poised to weather the downturn better than their peers due to healthy pickup sales.
Buoyed by truckloads of incentives, GM, FCA, and Ford Motor Co. gained a whopping 11 points in U.S. market share thanks to their most profitable vehicles. Ford isn't scheduled to release its detailed January-March sales numbers until Thursday.
The sales pain spread across all sectors of the automotive market. Toyota and Hyundai saw first quarter sales decelerate, with the Japanese giant dropping 35.3% in March alone. Including its abysmal 43% March decline, Hyundai reported an 11% drop in the first quarter. Luxury automakers were particularly hard it with Porsche first-quarter sales chopped 20.2% from a year ago (after a record 2019) and BMW off 15.3%.
The industry is bracing for difficult months ahead with March a passing rainstorm compared to the coming April hurricane. With states expected to be in lock-down until April 30, J.D. Power predicts an 80% decline in sales.
After a record five years of annual U.S. sales over 17 million units, sales were expected to slow in 2020, according to J.D. Power forecasts, to a still healthy 16.8 million units. But with automakers poised for the spring selling season beginning in March, COVID-19 has changed the landscape.
Assuming sales pick up after July, annual sales should stabilize between 12.1-14.8 million units for the year — down 10% to 30% from their 2019 projections.
"It's going to get much worse in April as uncertainty rises and the potential that regulations will stay in place," said Thomas King, chief product officer for J.D. Power. "We expect 1.6 to 2.4 million unit sales lost from March though July."
According to a University of Michigan survey, consumer sentiment tumbled last month to its lowest level since the 2008 Great Recession and is projected to hit its largest two-month decline ever. Not surprisingly, given COVID-19's impact on seniors, the 57-years-and-up demographic saw the biggest decline — 67 percent — in auto shoppers.
"Most important is when stay-at-home orders end," continued King. "There is going to be significant economic damage, and the economic environment is going to be challenging for the rest of the year."
Dealers across the country are offering no-interest loans and unprecedented 84-month lease terms to entice buyers to profit-rich pickups in particular. To maintain truck sales, automakers doled out a record — 46 percent — of 84-month loans as well as a record $7,200 in incentives.
As a result, pickup sales last week were down just 27% compared to 61% for the industry, leading to the Detroit Three's highest market share since 2006. In GM's stable, the Chevy Silverado pickup roared to a 26% sales gain over a year ago with 143,698 units sold, while its Sierra cousin was plus 31%. The popular Ram pickup lifted sales 7% to 128,805 vehicles.
"In terms of adapting to changing conditions, there may be no better group than auto dealers," quipped King. "They are showing remarkable ability to retain volume in the key truck segment."
GM and its dealers are offering concierge service, courtesy transportation, and home delivery where permissible. But permissible varies by state: In Michigan, Pennsylvania, Washington, Kentucky, and Hawaii even online sales have been suspended until April 14.
The Michigan Automobile Dealers Association has advised its members that automotive sales remain closed under Gov. Gretchen Whitmer's business guidelines. Only service, parts and body-shop operations are allowed to stay open.
As a result, Detroit saw a near 100% collapse in sales in the last week.
“We are still actively talking with customers, answering questions and booking appointments for when the governor’s executive order lifts on April 14,” said a spokesperson for Lafontaine Automotive Group.
New York Gov. Andrew Cuomo lifted that state's ban on online sales March 27. "This is an enormous win," said New York State Auto Dealer Association President Bob Vancavage in a statement. Dealers “have been working non-stop to craft an exemption under the essential business guidelines to allow dealers to do what they do best: sell cars."
The cratering of sales in New York was a key reason that luxury auto sales took the biggest hit in March. The state accounts for some 14% of premium sales nationwide. In contrast to pickup makers, luxury brands saw their market share decline from 14% to just 10%.
In California, the nation's largest auto market, the California New Car Dealers Association has advised all 1,400 showrooms to comply with Gov. Gavin Newsom's shutdown order.
Even home-team Tesla Inc. was forced to shut down production and showroom deliveries of its electric cars. The shutdown comes as the Silicon Valley automaker is launching its first entry-level SUV, the Model Y. Analysts expect Tesla sales to be off 30%.
The Golden State's first-in-the-nation shelter-in-place order on March 19 showed ominous signs for the industry as San Francisco sales slid 86% the first weekend after the order. But San Francisco has modestly rebounded in the week since implying dealers are adapting quickly to the new environment.
Since a majority of luxury vehicles are leased, J.D. Power predicts a lot of pent-up demand in that segment once shelter rules are lifted.
For Detroit automakers, there were some bright spots outside of their core truck lines and the small-volume Bolt electric car. Sales of Chevy's entry-level, $22,295 Trax SUV soared even as the rest of the brand's SUV lineup did not fare as well. The entry-level Spark sedan saw sales gains, but Autotrader analyst Michelle Krebs warned against a trend of small car purchases.
"We anticipate that sales of subcompact and compact cars (and SUVs) will struggle the most in the coming year. These segments tend to be bought by the least credit-worthy buyers, who already pay high interest rates and are the most vulnerable to layoffs in this economic crisis," she said.
Overall, Chevy saw the least degradation among GM brands with sales off 3.8%. GMC dropped 5.5%, Cadillac 15.8% and Buick 34.7%.
For Fiat Chrysler, sales of the family-friendly Chrysler Pacifica minivan climbed 5%. Jeep's all-new Gladiator pickup continued to impress with its third consecutive quarter of 15,000-plus sales though the Jeep line declined 14% for the quarter. That paled next to Fiat's 49% free fall.
"We expect some automakers will use the crisis to clean their houses, choosing to eliminate models and even brands," said Krebs. "Long-suffering brands like Fiat might not survive the crisis."
Despite the sales gloom, TrueCar projected the average transaction price of vehicles to be up 3.2% in March 2020. Transaction prices have been key to industry profit margins, but TrueCar analyst Eric Lyman sounded a cautionary note as COVID-19's effect on sales did not set in until mid-month.
“Historically, there’s been a strong correlation between consumer confidence and average transaction price,” he said. “We’re now seeing one of the largest one-month declines in consumer confidence in nearly 50 years. April will provide a much clearer picture of the full impact caused from the coronavirus.”
Henry Payne is auto critic for The Detroit News. Find him at email@example.com or Twitter @HenryEPayne.