Does Q3 U.S. Auto Sales Signal Green Shoots of Recovery?

The coronavirus pandemic has left the U.S. auto industry mired in crisis. U.S. vehicle sales took a nasty hit during the first and second quarters of 2020 due to sagging showroom traffic and sluggish demand for cars amid coronavirus-led restrictions, along with uncertainty in economic environment.

However, with COVID restrictions easing and people getting used to a new normal, it seems that vehicle sales are gradually on the mend. At least, that is what third-quarter sales numbers of various auto biggies reflect. While sales of most firms declined year over year, the metric improved from the prior quarter. Importantly, the recovery gained traction especially in September, as sales rebounded from coronavirus-led lows and even grew year over year. Sales growth in September marked the first monthly rise since February. Let’s delve deeper to find out what all worked in favour of the U.S. auto sector during third-quarter 2020.

Factors at Play

Robust demand for trucks and sport utility vehicles (SUVs) are acting as primary drivers. Rise in homebuilder sentiments, strong demand for RVs and increased home construction activity are driving demand for heavy-duty pickups. Increasing car ownership amid the pandemic is another stimulant. Public transportation and ride-sharing options are increasingly avoided by people. Private transportation is viewed as the safest bet for both local and long-distance trips, thereby boosting demand. Easier credit conditions with super low auto loan interests are also boosting retail sales and making car sales more affordable. Ramp up of e-commerce initiatives to stock sales also seems to be paying off.

While vehicle sales in September are likely to have been buoyed partially by the Labor Day Holiday weekend, but the overall performance underscores the improving industry fundamentals. Meanwhile, tight inventories are also driving the prices of cars. Per J.D. Power data, car buyers paid $35,655 for a new vehicle during September, up 5.6% year over year.

Rundown of Q3 Sales Figures of Auto Biggies

U.S. auto giant General Motors GM delivered 665,192 vehicles in third-quarter 2020, down 10% from the year-ago level but up from deliveries of 492,489 vehicles in second-quarter 2020. The company’s sales particularly rebounded in September, when it witnessed higher year-over-year deliveries. High demand for mid-size SUVs and pickups drove sales during the quarter. General Motors’ Chevrolet Blazer witnessed its best quarter ever, with sales up 45% year over year. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Its closest peer Ford F sold 551,796 vehicles during the quarter under review, down 4.9% on a yearly basis but up 27.2% sequentially. Robust demand for pickups drove overall sales during the third quarter of 2020. Sales of F-Series and pickups totaled 249,997 units, marking the company’s highest Q3 truck sales since 2005.

American-Italian carmaker Fiat Chrysler FCAU delivered 507,351 vehicles, which contracted 10% from the year-ago period but marked a 38.2% jump from the prior quarter. Sales of the firm’s popular RAM pickup was down 3% year over year but the decline was much slimmer than 35% drop it posted for the second quarter. Jeep Gladiator managed to remain in the black, with sales soaring to 22,163 vehicles, up 37% and 13.2% on a yearly and sequential basis, respectively.

Sales of Japan-based auto bigwigs Toyota TM and Honda HMC recorded a year-over-year decrease of 11% and 9%, respectively. The declined narrowed from the prior quarter’s plunge of 34.6% and 15.5%, respectively. As sales are gradually on the rebound, both the companies registered double-digit year-over-year gains, especially amid higher truck deliveries. Meanwhile, the worst news came from Nissan NSANY, with the company posting more than 32% decline in third-quarter vehicle sales. Contrarily, Mitsubishi was an outlier and registered nearly 1.6% year-over-year increase in vehicle sales during the quarter.

German auto giant Volkswagen VWAGY reported around 7.6% year-over-year decrease in sales volumes. However, the decline was slimmer than 29% drop recorded in the prior quarter.

South-Korea-based Hyundai’s sales fell 1% year over year to 170,828 units but rose 20.5% sequentially. In fact, the company’s sales during September witnessed a 5% increase year over year on the back of high demand for high-profit SUVs.

What Lies Ahead?

After back-to-back monthly declines, U.S. consumer confidence picked up sharply in September and reached the highest level since the coronavirus outbreak. Rise in consumer confidence bodes well for the auto sector, which is particularly cyclic in nature. Per Conference Board data, the Consumer Confidence Index rose to 101.8 in September from an upwardly revised reading of 86.3 in August. Unemployment rate has been declining consistently on gradual resumption of economic activity and the Fed’s efforts to support the economy. While the job market is slowly rebounding, this steep rise in consumer confidence brings fresh hope. 

Moreover, the Federal Reserve is looking to keep rates near zero through 2023 and has pledged to continue pumping in stimulus until the economy is back on track. This will encourage lending and boost consumer spending. As such, this will push more consumers to avail loans while buying vehicles.

It should be noted that while auto sales to individual buyers have started to gain traction, fleet sales to rental car companies, corporations and government agencies have been hit hard, and the recovery is expected to be slow. According to report, fleet sales are expected to comprise just 11% of new vehicle purchases during the third quarter, down from the year-ago level of 17%.

Unless there is a spike in coronavirus cases, triggering another round of lockdown and sending vehicle deliveries into a tailspin, auto sales in the United States appear to be gradually gaining momentum. Nonetheless, it’s a long road to recovery before achieving the 2019 level of sales.

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Ford Motor Company (F): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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