USA May 2020: Decline thaws to -33% but plateauing retail, devastated fleets point to shaky recovery

The U.S. recovery is hampered by absent fleet sales, notably rental cars.

U.S. new light vehicle sales are estimated to fall -33% year-on-year in May to 1.065.000 units according Edmunds, ALG and Cox Automotive, compared to a revised -50% and 668.000 in April. This pulls the year-to-date tally down -24.2% to 5.246.000 and 2020 volumes are still forecast to drop -24% to 13 million units, because the retail recovery seems to have already plateaued and fleet sales are hampered by lack of demand by rental companies. With total U.S. COVID-19 infections (from 1.16 million a month ago to 1.83 million today) and deaths (from 67.682 to 106.274) still rising steadily, as of June 2 all 50 U.S. states have loosened restrictions put in place earlier in the pandemic, with some businesses are allowed to reopen notably car dealerships. The Seasonally Adjusted Annualised Selling Rate (SAAR) has bounced back somewhat from the depths of March (11.33 million) and April (8.6 million) to 12.17 million in May according to Motor Intelligence, still a far cry (-30%) from the 17.4 million a year ago in May 2019.

If going from -50% to -33% shows certain progress, the U.S. new light vehicle sales recovery may be spotty from now on and a return to positive year-on-year variations at any point in time within 2020 now seems out of question, for 3 main reasons. Firstly, retail sales are plateauing already. If retail activity has shown a stronger resolve in May with an estimated -25% over the May 1-24 period and expectations for the full month ranging from -20% (LMC) to -26% (ALG), there are signs this may be all it can give for now. J.D. Power said the sales recovery essentially plateaued in the several weeks leading up to Memorial Day, with the final week of May finishing on par with the early part of the month. There are 40 million more unemployed U.S. citizens than there were just two months ago, and historically low consumer confidence will not lead to a buying frenzy in the coming months. Charlie Chesbrough, senior economist at Cox Automotive, said to local outlet Automotive News: “The key question for the market going forward is whether these modest but steady sales gains will continue into June or does the sales recovery stagnate.”

Mazda only drops -1% in May. Picture caranddriver.com

Secondly, U.S. fleet sales are headed towards a slow-motion train wreck for the rest of year. LMC Automotive projects a -65 to -70% drop in May while ALG expects an even more daunting -78% year-on-year freefall for May and -50% for the Full Year 2020. These are year-on-year drops that started in March and have continued throughout, with little hope of improving much over the coming months. The main culprit is frozen rental sales which normally account for 8 to 10% of annual U.S. new light vehicle sales. The bankruptcy filings of Hertz Global Holdings Inc. and the parent of Advantage Rent A Car means up to 1.3-1.5 million rental sales will be missing by the time 2020 comes to an end. Hertz said it doesn’t plan to buy any more vehicles this year, and Avis Budget has reduced its planned purchases this year by 80% according to Automotive News. Finally, inventory shortages may further delay market recovery. Some strong selling segments such as large pickup trucks – the main source profits for the Detroit 3 – is at critical risk of supply shortages with inventory at 44 days vs. 88 a year ago according to Barclays. This could be heightened if production continues to be disrupted by parts shortages or frequent plant shutdowns because of sick workers, which we have seen already.

Average incentives per vehicle soared 21% year-on-year and 5.3% month-on-month in May to $4.526 according to ALG (see above), up 23.3% year-on-year to $4.782 according to J.D. Power. ALG figures show all manufacturers bar Hyundai (+4.9%) increased their average incentives by more than 10% year-on-year, with the most aggressive being Honda (+47%), Daimler (+41%), Nissan (+34%), FCA (+33%), the Volkswagen Group (+33%) and General Motors (+25%). Analysts expect deals will reduce as inventory thins, notably for in-demand SUVs and light trucks. The average transaction price is up 4.6% or $1.607 year-on-year to $36.511 but down -1.7% or $639 on last month according to ALG. The average annual percentage rate on new financed vehicles is 4% according to Edmunds vs. 4.3% in April and 6.1% in May 2019. 0% finance offers account for 24% of all new financed purchases, still near record levels and compared to 25.8% in April.

Volvo is down just -2.5% year-on-year in the U.S. Picture caranddriver.com

Toyota Motor (-25.7%) fares the worst of all groups still reporting monthly volumes (there are not many) while Fiat Chrysler Automobiles saying its retail sales drop -15% for the month which indicates a much larger overall decline. American Honda (-16.9%) and Hyundai-Kia (-18.5%) vastly improve on their April performance (-54.1% and -38.7% respectively), confirming the market recovery analysts are expecting. Brand-wise, Mazda (-1%) and Volvo (-2.5%) stun with almost stable sales year-on-year but are the only ones among the reporting set managing single-digit falls. Hyundai (-12.9%), Honda (-16.2%), Lexus (-18.5%) and Subaru (-18.7%), while Kia (-23.7%), Acura (-23.7%) and Toyota (-26.6%) are hit harder and Genesis (-41.6%) continues to struggle.

Hyundai crossover sales soar 12%, boosted by the new Palisade.

Hyundai provided more detail on their May sales, showing car deliveries in freefall (-44%) at 16.456 contrasting with positive crossover sales (+12%) at 41.163. Retail volumes are up 5% but fleets implode -79%. Only 7 of the 66 models reporting sales for the month manage a year-on-year gain in May, up from just two in April: the Volvo V60 (+550%), Volvo XC40 (+34.4%), Mazda MX-5 Miata (+30.7%), Mazda CX-9 (+20.8%), Honda Passport (+3%), Genesis G90 (+1.9%) and Kia Sedona (+1.5%). The Hyundai Palisade easily tops recent launches at 7.866 units, distancing the Mazda CX-30 (3.583), Kia Seltos (3.551) and Hyundai Venue (1.650).

Previous post: USA 1-24 May 2020: Retail sales down -25% despite lifting of stay-at-home orders

Previous month: USA April 2020: Market down -53%, lowest SAAR in over 40 years at 7.6 million

One year ago: USA May 2019: Ram Pickup and Toyota RAV4 records can’t prevent 5th consecutive market drop (-0.1%)

Full May 2020 data for selected groups, brands and models below.