Against the odds: Detroit 3, foreign transplants play to strengths in COVID crisis

The challenging COVID-19 auto market has been a tale of two camps: the Detroit Three and foreign transplants.

Defying many predictions that consumer demand would collapse amid pandemic lockdowns, both have recorded better-than-expected sales in the months of April and May even as they have pursued different strategies playing to their strengths.

Detroit manufacturers have focused heavily on pickups, a market they dominate, to maintain profitability. Asian and European automakers have minimal presence in the uniquely American truck market. Instead, they have focused on sedan markets — largely vacated by Detroit makers — while also flooding SUV segments with more product.

Detroit Three pickup sales, for example, surged to five percent more than forecast pre-COVID, a remarkable achievement given that industry forecasts were for 80% industry sales declines at the beginning of March. So strong were pickup sales that the Detroit Three in April achieved 50% market share — a whopping 13% higher than average.

Meanwhile, Korean automaker Hyundai experienced the industry’s strongest gains in retail market share — alongside Ford — for May as it poured on incentives for its all-new Sonata and Elantra sedans as well as its Tucson compact SUV. Compact utes are the biggest volume segment outside pickups.

As a whole, industry retail sales were off only 12% as of June 1 compared to pre-COVID forecast — and a March 29 bottom of -59%. While tanking media markets like New York and California got the headlines, Hyundai actually gained year-over-year sales in 37 states.

“At the beginning of (April) we expected a doomsday scenario ... that predicted the industry was going to be down roughly 80%,” said Hyundai North America sales chief Randy Parker. “The good news is the industry performed much better than we expected. We were only down 13% (total) in May. Take out fleet and our retail was actually up 5% year-over-year.”

Like all automakers, Hyundai has seen fleet sales (down 79%) crater along with the travel industry: “We went to 84-month loans on our Tucson and Elantra models,” continued Parker. “We dialed that back a bit in May. Tucson’s a hot seller for us — crossovers and SUVs are selling very, very strong. We want to fish where the fish are — we wanted to make sure we got our fair share.”

Like other foreign automakers, Hyundai — which has hovered around 4.5% market share over the last decade — has flooded the U.S. market with SUVs. All-new Venue, Kona, and Palisade badges have been introduced in the last two years.  Outside of pickups, the best-selling vehicles in America are the Toyota RAV4, Honda CR-V and Nissan Rogue SUVs.

Continuing pre-COVID trends, SUV share of the market is now at a record 55.3%. Next to pickups, the volume compact SUV segment showed the smallest decline — 11% — from pre-virus forecasts.

That is the common battleground in the U.S. market.

The Detroit Three — which invented the SUV going back to the Jeep Cherokee, Ford Explorer and Jeep Wrangler — try to defend their territory against surging foreign competitors. Toyota is dropping three new family vehicles this year and next alone: the Highlander and Venza SUVs as well as the Sienna minivan.

Hyundai’s Palisade SUV has drawn a bullseye around the Ford Explorer, long a midsize sales leader, and the Palisade has been one of the hottest-selling vehicles this year. Its cause was helped by the fact that its production in South Korea only shut down for a few days, allowing continued shipments to the U.S. while competitor plants sat idle.

“Palisade production coming from South Korea (had) no hiccups,” said Parker. “One of the advantages of Palisade is plants have been up and running.”

Volkswagen, once synonymous with cars like the Beetle and Golf, also thrived with such new SUV entries in the U.S. market as its Atlas and Atlas Cross Sport.

“Demand in April was stronger than expected, and we’re seeing that trend continue in May,” said Duncan Movassaghi, VW executive VP of sales. “Our share of sales from SUVs has grown from 15% in 2016 to more than 50% now. We've had strong deals in the market, so it’s been a good time to buy.”

But while foreign makers shy from taking on Detroit’s Big Four of Ford F-150/Chevy Silverado/GMC Sierra/Ram in the pickup aisle, so has Detroit ceded the sedan market to foreign makers.

Smelling opportunity to bring in new buyers and gain market share, all foreign makers have new compact and mid-size sedans in U.S. showrooms. For Hyundai’s part, it has been aggressive during COVID with its Elantra compact and midsize Sonata.

“We gained share in both segments. Those are our bread and butter. We are gaining share in segments where consumers still want to buy passenger cars,” said sales chief Parker.

As diverse as their segment strategies are, both domestic and foreign automakers pursued similar, heavy incentive pricing and online programs to keep inventory moving. Zero percent financing on 84-month loan deals hit record levels for the last two months with incentive levels per vehicle hitting a record $5,000 in early May.

As states began to open in late May and factories got back up to speed, manufacturers began to pull back on incentive deals which analysts say could cool sales into the usually hot summer months.

“Reduced incentives are being driven by lower inventories but pose a threat to the sales recovery,” said J.D Power data analyst Tyson Jominy. “We may see much tougher month of June compared to May.”

But carmakers are also eyeing consumer shifts forced by the unprecedented COVID crisis that may benefit their business in the long run.

“I think his pandemic is reminding people of the value of individual mobility,” said VW sales chief Movassaghi. “The appeal of getting into a crowded subway train or the back of someone else’s Uber is diminished for the time being. A car has always been a sanctuary, and I think we’re seeing a resurgence of that.”

Henry Payne is auto critic for The Detroit News. Find him at hpayne@detroitnews.com or Twitter @HenryEPayne.