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J.D. Power: U.S. Auto Industry Recovery is Now at a Pause

Six weeks of consecutive growth in the U.S. auto industry has stalled, according to J.D. Power.

This means sales remained level for three weeks in May across a majority of markets, according to J.D. Power experts who share industry updates during weekly webinars. Read previous reports here.

U.S. retail sales from May 4 to May 24 are down 23% to 25% from J.D. Power’s pre-virus forecast, according to the latest “COVID-19: J.D. Power Auto Industry Impact Report.”

“The recovery has now officially paused and is moving sideways,” said Tyson Jominy, J.D. Power’s vice president of data and analytics, in the May 28 webinar.

Mainstream cars were the major contributors to the auto industry remaining flat. Midsize and compact cars contributed to the decline, while compact and midsize premium SUVs continued to recover, according to the report.

J.D. Power also identified at least five reasons the recovery has paused:

  1. 1. Sub-prime consumers, the group most likely to have been affected by unemployment and the coronavirus, are not buying cars right now.
  2. 2. Vehicle inventory is seeing limitations as manufacturers do not fully have their warehouses up and running. There will also be inventory constraints on certain vehicles in particular geographic locations.
  3. 3. Lessees have still not come back to the market at the same rate as pre-virus. A large number of lessees remain out of the market due to lease extensions. Returning lessees are considering other options to leasing.
  4. 4. Older customers, 66 years and older, have continued to stay away from buying new cars since they are the group most at risk during the pandemic.
  5. 5. People are enjoying the “new normal” lifestyle, as many markets have re-opened and the weather has been warmer, instead of visiting auto dealerships.

While the sales recovery has paused across major markets, some markets are still seeing gains. For example, Dallas has experienced strong sales of mainstream SUVs and premium segments.

Midsize pickups and premium segments led gains in Detroit, while New York continued to lead the industry recovery with a higher percentage improvement compared to national sales performance, Jominy said.

Weaker sales across Los Angeles and many smaller markets offset these strong gains from New York and Dallas, he said.

“With open beaches and open life in Los Angeles and San Francisco, this is likely why those cities are down,” Jominy said. “Los Angeles had the largest negative impact on the performance.”

Despite these gains, 111, or 53% of the markets, posted a slowdown, which kept the industry at the 25% performance decline, he said.

GM, Ford and FCA (Fiat Chrysler Automobiles) combined retail market share declined due to gains by other non-premium brands. Several of these non-premium brands launched additional incentive programs which helped their market share increase, according to the report.

The good news is the market share is returning to pre-virus levels, Jominy said.

While Memorial Day is typically one of the strongest shopping weekends, incremental discounts for this year’s shopping holiday were absent this year. With incentive spend per unit already at record levels for May prior to Memorial Day, the holiday offers this year were not greatly enhanced, he said.

“It was probably lighter than we would have wanted,” Jominy said. “We think it’s probably justified in that there are still sales out there. We would have wanted better. Our hopes and hearts wanted more than we got.”

Used Vehicle Market

Used vehicle sales for May are only 10% below forecast. This is a stark improvement from April and evidence that the used vehicle market is in recovery, said Jonathan Banks, J.D. Power’s vice president and general manager of vehicle valuations.

“We’ve seen a 5% improvement week over week, with used sales tracking just 10% below,” Banks said in the webinar. “We’re expecting a continuation of this improvement.”

Wholesale auction sales are approaching pre-virus expectations, despite widespread in-lane bidding activity. These auctions are not yet conducted in person because of coronavirus restrictions, and are instead happening primarily through simulcast channels, Banks said.

Wholesale auction prices may surpass pre-virus expectations in the near-term as dealers replenish used vehicle inventory depleted by relatively robust retail used sales, he said.

“Wholesale auction prices have caught up with the more stable performances exhibited by used retail and direct-to-dealer prices,” Banks said.

Sales Outlook

Retail sales were expected to decline 24% during the full month of May, compared to pre-virus forecasts, said Thomas King, president of the data and analytics division and chief product officer for J.D. Power.

The J.D. Power May retail sales outlook is 991,000 units. This is a 24% decline, or a sales drop of 312,000 units.

“We know that folks have made a personal decision not to be out and about,” King said in the May 28 webinar. “The barriers to purchase have been diminished, but economic trauma is still being felt across the U.S.”

Inventory varies significantly across segments during these three weeks in May and is already impacting sales. The continued success will depend on production, allocation and geographic targeted incentives, according to J.D. Power.

Digital Air Strike provides many free business resources for auto dealers, including a comprehensive COVID-19 resource guide, best practice strategies during the pandemic and how to create a clean room at your business.

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