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Wednesday, 10 June 2020 21:20

Are Auto Sales Back on Track? May Depend on Automakers Throwing More Cash at Buyers

Written by Paul A. Eisenstein, The Detroit Bureau

Index

After flattening out in May, U.S. auto sales ended the month with an unexpected burst of demand, but whether the sudden upturn---that saw many cities actually exceed pre-pandemic forecasts---will last is far from certain.

As May came to an end, automakers began trimming back on some of the lavish incentives they used to keep the market moving as the coronavirus pandemic struck, noted Tyson Jominy, a senior analyst with J.D. Power. And that could wind up turning off buyers who could sit on the sidelines until more lucrative deals get put back on the table, he added.

 

For the month as a whole, May saw demand dip by 29% compared to pre-pandemic forecasts, according to Power data gleaned from thousands of dealers across the U.S., but that was significantly better than what had originally been expected for the month, said Jominy.

 

And, with many of the “unprecedented incentives” set to expire or be cut back at the beginning of June, showrooms saw a flurry of traffic during the final days of the month, sales for that week just 12% below Power’s original forecast.

 

In Tampa, FL, and four other markets, in fact, sales actually exceeded pre-pandemic expectations. In all, 173 markets showed a surge in sales for the week, with even some of the cities particularly hard-hit by COVID-19 outbreaks---such as Detroit, San Francisco and New York---coming close to target.

 

“It was a very strong industry across the board,” said Jominy during the latest in a series of Power webinars looking into the impact of the coronavirus pandemic on the U.S. auto industry.

 

As the virus spread across the country, leading to broad public lockdowns and the closure of many dealerships, automakers were facing forecasts that anticipated demand plunging as much as 80% in April.

 

The actual number was a decline of less than half. Manufacturers rolled out their heaviest weapons in the form of record incentives. On average, that means rebates, low-or no-interest loans and other givebacks averaging about $5,000 a vehicle.

 

Full-size pickups, which were barely impacted by the pandemic, carried incentives of as much as $7,300, on average.

 

Without these deals, “unquestionably, yes,” the industry risked significant damage, such as the failure of many dealers, said Thomas King, Power’s chief data officer.


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