Reflecting toll of COVID-19, FCA, GM sales drop by a third, portending uncertain recovery

Detroit — New vehicle sales for two of Detroit's automakers dropped by about a third in the second quarter, reflecting the coronavirus pandemic's toll on the auto industry. Results could have been much worse, analysts say, even as they express concerns that market conditions could deteriorate again in coming months.

Fiat Chrysler Automobiles NV on Wednesday reported a 39% year-over-year drop in U.S. new-vehicle sales in the second quarter. General Motors Co. reported a 34% drop. Ford Motor Co. is set to deliver its sales on Thursday.

"(No one) thought this was going to be a really great quarter. We expected double-digit declines," Jessica Caldwell, executive director of insights for auto-information website, Inc., told The Detroit News. But, "thinking back to where we were in mid-March, this result wasn't as bad as we thought it would be, fearing the worst."

The industry, while facing a steep drop-off in demand from fleet customers, such as rental car companies, has been buoyed by higher-than-expected consumer demand. Individual customers, driven in part by what Caldwell described as "once-in-a-lifetime" incentives, have steadily returned to dealer showrooms (or, increasingly, to dealer websites) for new metal and new ways of taking delivery.

Still, the sequential month-to-month improvement in the second quarter does not ensure a rebound and instead might portend a slow and potentially bumpy return to normal. Industry analysts are forecasting a years-long road to recovery and have pointed to several shorter-term obstacles posed by the COVID-19 pandemic and state-by-state reopening plans.

Lagging vehicle inventory at dealerships, which automakers are rushing to fill, might cause some shoppers to hold off on buying. Twenty-one million Americans remain unemployed. Coronavirus cases are now surging across parts of the South and West, raising the likelihood of another widespread shutdown. And, amid widespread economic hardship, consumers are increasingly turning to the used-vehicle market, especially as dealerships pull back on incentives.

Wednesday's reports came on the heels of an eight-week North American production shutdown by Detroit's three automakers. The shutdown, from late March to mid-May, took place mostly in the second quarter and cost the companies billions.

FCA delivered 367,086 vehicles in the second quarter, down from 597,685 in the second quarter of last year. GM delivered 492,489 compared with 746,659 in 2019's second quarter. For the first half of the year, FCA's sales are down 26%. GM's were down 21%.

One potential bright spot, FCA, GM and analysts noted, is that retail sales, which plummeted in April, started to rebound in May and June.

"This quarter demonstrated the resilience of the U.S. consumer," Jeff Kommor, FCA's head of U.S. sales, said in a statement. "Retail sales have been rebounding since April as the reopening of the economy, steady gas prices, and access to low-interest loans spur people to buy."

Less resilient, however, were sales to fleet operators, which Kommor described as "low" over the second quarter. And vehicle rental companies are experiencing deep financial problems — industry giant Hertz filed for bankruptcy in May — as business and leisure travel dries up amid the lengthening pandemic.

Analysts say it may take longer for fleet sales to rebound. Car-rental companies, which account for the majority of fleet sales, have been devastated by the coronavirus crisis because of drastically-reduced travel. 

GM also said sales are starting to show signs of recovery. GM's retail sales were off by about 24% in the quarter. Retail sales in April were down the most in the quarter, off by about 35% compared to last year, but recovered significantly in May and June with year-over-year declines of about 20% or less. 

All of GM's brands saw sales declines: Chevrolet posted a 34% decline; Cadillac a 41% decline; Buick a 36% decline; and GMC a 33% decline.

Pickup truck sales were "resilient" for the Detroit automaker. Chevrolet Silverado light-duty sales came in at 89,465, down 18.6% from last year. Silverado heavy-duty sales were off just 0.7% with 31,279 sales. GMC Sierra light-duty sales came in at 38,825, down 9.5% from last year. Sierra heavy-duty sales were up 7.6% with 14,999 sales.

"Our resilient sales reflect an improving demand curve, and the strong efforts of GM and our retailers in unprecedented times,” said Kurt McNeil, U.S. vice president, sales operations in a statement.

“GM entered the quarter with very lean inventories and our dealers did a great job meeting customer demand, especially for pickups. Now, we are refilling the pipeline by quickly and safely returning production to pre-pandemic levels."

Greg Greenwood, a Chevrolet dealer in northeast Ohio, started out the month of June with 10 Chevrolet Silverado trucks in stock. He ended the month with 20 Silverado sales. 

"That’s just working out of a very short basket," he said. "That’s like selling 10 dozen eggs and you only had 5 dozen to start the day."

Greenwood sold trucks as soon as they were delivered in some cases and got some from other dealerships to make it work. If he had the inventory, he says he could sell 40 Silverados a month, which would mean he'd need 60-80 on his lot: "It’s pretty critically short to where you want to be." 

But if inventory levels were his biggest concern at the start of June, he's now switched to worrying more about mounting evidence of a spiking pandemic — how increases in cases could affect the industry, production, sales and all-important consumer confidence.

"Inventory is not too cool, but I am much more worried about getting a handle on this virus. … If they shut the factories down who cares about inventory," he said. "If we get a handle on the disease and get some product to sell, we are going to have a good fall."

And he's unsure what the end of the extra $600 in federal pandemic unemployment insurance this month will mean: "We are in a sweetheart spot right now because we have one more month of federal unemployment support. When that ends, I’m not exactly sure what people are going to be looking at."

Chrysler Dodge Jeep Ram of Seattle also has been hit by low inventory levels. Owner Jim Walen typically has 500 to 600 vehicles in stock, but now he's carrying closer to 200 units. Walen would usually have 100 trucks in stock but has 24. The dealership has done trades with other dealers and moved to other products to show customers to make sales. 

"The winners in this new marketplace are the ones who are going to innovate," Walen said. "The business has changed ... there’s less business out there, but there is business out there. It’s changing how we sell cars. How we buy them. The market is really in flux."

To grow its inventory as quickly as possible, GM is working with logistics and trucking companies to ship vehicles as soon as they are produced. The latest Cox Automotive data shows Chevrolet's supply is right below 70 days and GMC is slightly above 50. Jeep is above 70 and Ram is above 80. The national average is 70 days. Ford has the highest with levels closer to 90. 

Sales of FCA's Ram were down 35% in the second quarter. Sales of FCA's Dodge brand, which includes models such as the Durango and Caravan, plummeted 63%, to 43,75.

FCA's luxury Alfa Romeo brand — which makes up a relatively small share of the automaker's overall sales — posted the smallest decline, at 21%. Jeep, FCA's best-selling brand, was down 27%.

After restarting plants the week of May 18, GM's U.S. pickup truck and full-size SUV plants have returned to three shifts. Nearly all of GM's car and crossover plants returned to the same number of shifts as pre-pandemic levels. The majority of GM’s U.S. plants, including all truck and SUV plants, will continue to operate during the traditional two-week summer shutdown.

FCA and Ford have said they are now back to full, pre-shutdown production levels at their North American plants.

"We do think that low inventories will hamper sales and again we will have to see what happens," said Michelle Krebs, senior director of automotive relations for Cox Automotive. "It's all about the virus. What's the virus going to do? How do we react to it, and how does the consumer react to it?"

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