CoVid-19 Industry Updates

CoVid-19 Industry Updates (122)

FCA US LLC reported second-quarter sales of 367,086 vehicles – a 39 percent decline over the same period a year earlier – as the economic havoc caused by the COVID-19 pandemic in April was partially offset by the stronger than expected retail sales rebound in May and June.

Fleet sales were impacted in the quarter as customers initially delayed or reduced their orders, in addition as production restarted deliveries have been focused on the dealer channel.  

“This quarter demonstrated the resilience of the U.S. consumer,” said Head of U.S. Sales Jeff Kommor. “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. Our fleet volume remained low during the quarter as we prioritized vehicle deliveries to retail customers. As a result, we have built a strong fleet order book, which we will fulfill over the coming months.”

This was also the first quarter consumers could completely purchase their vehicles online through the company’s new Online Retailing Experience (ORE). ORE is accessible through the Chrysler, Dodge, Jeep, Ram, FIAT and Alfa Romeo websites, participating dealer sites and a variety of social media applications. Customers simply click on the link to begin the process. About 20 percent of new sales leads now come from online retailing compared with about 1 percent a year earlier.

“ORE is another tool dealers can now use to reach those consumers who like shopping from their home computer,” Kommor said.

The coronavirus pandemic has had a significant impact on the fleet management industry, resulting in a sharp reduction in vehicle sales across the world, according to Beroe Inc., a  provider of procurement intelligence and supplier compliance solutions.

As manufacturers return to production, global automotive sales forecast is revised to 20 percent reduction from the previous forecast of 22 percent, with sales of approximately 72 million units, according to Beroe Inc.. The impact of COVID-19 is high on car manufacturers and alternate mobility, and medium on leasing companies.

Car manufacturers in the U.S. and Europe are returning to production with limited capacities and adequate health safety measures, according to Beroe. There has been a slow resumption of fleet activities across the globe, majorly by the essential service operators. It is almost certain that the demand for fleet vehicles has reduced worldwide. OEMs are expected to offer high discounts, as the residual value is likely to reduce. Lease prices are expected to go up as residual values and profitability reduce.

New-vehicle retail sales in June are expected to be down from a year ago, according to a joint forecast developed jointly by J.D. Power and LMC Automotive. Retail sales are projected to reach 1,002,600 units, a 5.7 percent decrease compared with the J.D. Power pre-virus forecast and 11.3 percent decrease compared with June 2019. Reporting the same numbers without controlling for the number of selling days translates to a decrease of 14.7 percent over last year. (Note: June 2020 contains one less weekend and one less selling day than June 2019).

“The industry continues to show signs of recovery in June, with retail sales down only 6 percent compared with the J.D. Power pre-virus forecast,” said Thomas King, president of the data and analytics division at J.D. Power. “This represents a significant improvement from May when retail sales were off 20 percent from the pre-virus forecast. The combination of pent-up demand, states relaxing coronavirus-related restriction and elevated incentives are all providing a tailwind for the industry.”

Total sales in June are projected to reach 1,085,600 units, a 25.1 percent decrease compared with June 2019. Reporting the same numbers without controlling for the number of selling days translates to a decrease of 28.0 percent over last year. The seasonally adjusted annualized rate (SAAR) for total sales is expected to be 12.8 million units, down 4.4 million units from a year ago.

Remarkably, in markets like Detroit (one of the most severely affected areas by COVID-19), retail sales are on pace to exceed 2019 levels.

Record levels of manufacturer incentives for the month of June are supporting the sales recovery. Incentive spending is on pace to reach $4,411 in June, the highest ever for the month and an increase of $445 from June 2019. Incentives on cars are expected to be up $459 to $4,031, with trucks/SUVs up $407 to $4,524.

Transaction prices continue to set records and are on pace to rise by 3.9 percent to $34,981, the highest level ever for the month of June. Record prices are being supported by the ongoing shift in consumer demand from cars to trucks/SUVs. Car sales are on pace to account for just 24 percent of new-vehicle retail sales in June, the lowest level ever for the month of June and the third month in a row below 25 percent. As the industry shifts towards more expensive products, SUV mix is expected to reach a record 56 percent.

Analysts at Edmunds report that June will be another down month for auto sales as the industry continues to combat challenges posed by the coronavirus pandemic, forecasting that 1,080,656 new cars and trucks will be sold in the U.S. in June for an estimated seasonally adjusted annual rate (SAAR) of 12.8 million. This reflects a 28.7 percent decrease in sales from June 2019 and a 3.6 percent decrease from May 2020.

“It comes as no surprise that the second quarter was a disappointing one for the automotive industry, but the good news is that auto sales didn’t come to a complete standstill either,” said Jessica Caldwell, Edmunds’ executive director of insights. “The fact that retail sales — not fleet — are what kept the market propped up speaks volumes to the resilience of the American consumer. And the way that dealers were quick to pivot to online sales also underscores the incredibly responsive and resourceful nature of the industry in the face of adversity.”

Edmunds experts note that sales are also down for the second quarter in a row this year, forecasting sales of 2,914,860 new cars and trucks in the second quarter, which reflects a 34.3 percent decrease from the second quarter of 2019.

“The marketplace is growing less inviting as automakers pull back on incentives and inventory dwindles due to factory shutdowns, particularly when it comes to trucks, which have been the one bright spot for sales during the pandemic,” Caldwell said.

Honda and General Motors are producing nearly 12,000 gallons of hand sanitizer through their Fuel Cell System Manufacturing (FCSM) partnership. The hand sanitizer will be used by both companies at their facilities throughout the region and Honda is donating 3,750 bottles to health care facilities in Ohio and Michigan this week.

The hand sanitizer is being made at the Brownstown, Mich., facility where the FCSM team has been working on the development of fuel-cell fuel stacks for the next generation of hydrogen-powered cars. Using an apparatus designed to manufacture the electrodes used in the fuel cells, the team developed a process to re-purpose the equipment to produce a hand sanitizer that would allow employees and health care professionals to work more safely.

Honda will donate nearly 75 percent of its allocation of the hand sanitizer, packaging the product in easy-to-use nine-ounce bottles for health care facilities. On June 22, Honda made the first such donation of 1,250 bottles each to ProMedica Toledo Hospital in Toledo, Ohio, Memorial Health in Marysville, Ohio, and the DMC Children’s Hospital of Michigan in Detroit.

Cox Automotive President and CEO Sandy Schwartz recently discussed his strategic plan called “The Way Forward,” during the company’s recent Mid-Year review.

“These are just crazy times,” Schwartz said. “We’ve gone from selling 50 percent online at Manheim to 100 percent online.”

But that’s not bad news.

Schwartz said Manheim’s flagship auction – Manheim Pennsylvania – recently sold 8,000 vehicles in one week, all digitally.

Plotting “The Way Forward,’ involves three areas, Schwartz said.

No. 1 is accelerating digital adoption to meet dealer demand. That means, creating the touchless car buying experience consumers want, while nurturing long-lasting service relationships and freeing time and resources to better serve customers, he said.

“This isn’t a new tune, we’re just beating the drum more loudly and a lot more,” Schwartz said.

When Cox asked Schwartz to run Manheim about a dozen years ago, Manheim was only selling 5 to 8 percent of its cars in some digital form. It took over 10 years to get to 50 percent, but the pandemic has moved that figure to 100 percent in just the last couple of months, Schwartz said.

The company has numerous tools to accelerate digital adoption.

“We can’t go backwards,” he said.

The second part of “The Way Forward,” is a focus on real-time market insights to fuel and help Cox Automotive’s customers make the best market decisions at all times.

Schwartz said Cox, with tools across more than 20 brands, has “unmatched data and analytics” to help with both wholesale and retail products.

No. 3 is to “be human at your core,” Schwartz said. This has to do with make continued safety the top priority for employees and customers. It means to nurture relationships and deepening customer ties by giving back to the community. It also means choosing business partners that share the same values.

Schwartz said despite Cox’s focus on technology, it’s “still the human touch, it’s still the human direction, that drives our technology.

“Trust is vital and the human touch must be felt in everything Cox does, from eco-friendly sanitizers in cleaning vehicles to social justice issues in communities.”

The California Assembly voted down a bill that would have had a huge negative impact on the state’s auto finance industry.

AB 2501 – the COVID-19 Homeowner, Tenant and Consumer Relief Law of 2020 – was defeated by a 28-25 vote on June 15 and the Assembly adjourned its session without taking up a motion to reconsider the measure.

The bill, sponsored by Assembly Banking and Finance Committee chairwoman Monique Limón, would have prohibited creditors from repossessing vehicles until Jan. 1, 2023, and required them to provide loan forbearance for up to nine months for customers unable to make payments.

Repossessions would have been halted under AB 2501
Repossessions would have been halted under AB 2501

The Independent Automobile Dealers Association of California worked with the National Independent Automobile Dealers Association to oppose AB 2501, noting its passage would drastically reduce the ability of independent dealers and auto finance companies to extend credit to consumers – especially credit-challenged individuals.

“We couldn’t be happier with the actions of the Assembly,” IADAC executive director Larry Laskowski said. ”There really was no upside to the bill. The economic impact would have been enormous. 

“Thanks to the action of IADAC and NIADA and other groups, members of the Assembly were able to make the right choice and defeat this potentially disastrous bill.”

In a letter to Limón and members of the Assembly, NIADA pointed out auto lenders assume significant risk in extending credit, which is minimized only by their ability to repossess the collateral in the event of a default. Without that ability they would be far less likely to provide credit – and those most likely to be harmed by that would be the most vulnerable and financially disadvantaged consumers.

Dealerware, a connected car platform for automotive retailers, will launch a new Contactless Contracting feature June 24. All customers will receive the new feature via a software update to Dealerware's Mobile Contracts product.

With Contactless Contracting, dealerships can send loaner vehicle agreements to customers via text message or email. Customers can review the terms of the agreement and sign for the vehicle on their own device, reducing the need for dealership employees and customers to physically share space, share devices or use impractical workarounds to complete paperwork.

Dealereare's contactless contracting app with Mobile Contracts
Dealereare's contactless contracting app with Mobile Contracts

From the service bay to the sales floor, Contactless Contracting enables dealerships to adhere to social distancing guidelines in order to protect the health of both employees and customers. Retailers are empowered to deliver exceptional customer service experiences such as touchless pickup and delivery, and unaccompanied or at-home, extended test drives.

“Automotive retail is changing faster than ever before, and while our primary goal with Contactless Contracting is to address a need for safer, more comfortable customer interactions, we also wanted to equip our customers to meet new consumer expectations for more flexible sales and service experiences,” said Russell Lemmer, president of Dealerware.

The new Contactless Contracting functionality will be a feature within Dealerware's Mobile Contracts product.

Dealer and consumer sentiment showed volatility, lower levels of used inventory are being reported, but there are also opportunities for efficient new operational methods in the wake of the coronavirus. Those insights come from the Cox Automotive report, “COVID-19: Tracking U.S. Consumer and Automotive Dealer Sentiment.”

However, 33 percent of independents expect the market will be strong in three months and 78 percent are doing business beyond their physical location.

The report showed that while many consumers are returning to more daily activities, “many continue to delay automotive purchases and servicing.”

Twenty percent of consumers are comfortable returning to normal duties, while only 2 percent of consumers think things are back to normal.

Cox stated, “inventory shortfalls are starting to eat into the price discounts that dealers had previously been offering.”

As of mid-June, the report showed 41 percent of consumers are delaying car purchases for up to two months, while 43 percent are delaying purchases three to six months.

Factors in those delays include unemployment concerns, worries about recent civil unrest, potential for a second wave of coronavirus and general uncertainty in the market.
About 62 percent of independent dealers feel inventory levels are too low, while 34 percent feel levels are “just right.”

The survey showed 47 percent of independent dealers have lowered retail prices as a result of the coronavirus.

Black Book reported good news on the retail and wholesale fronts in its June 16 COVID-19 Market Report.

“Fueled by continued stimulus payments, the success of the Federal Paycheck Protection Program, and unsatisfied demand from April and May, last week continued a story of rebounding wholesale prices, with volume-weighted overall car and truck segments both showing gains for a third week in a row, gaining 0.62 percent overall,” the report stated. “As for specifics, the overall car segments increased by 0.88 percent (compared to 0.16 percent the prior week) and the overall trucks and SUV segments increased again this past week at 0.52 percent (compared to 0.08 percent the prior week).

The Nissan Sentra is popular with used car buyers this year
The Nissan Sentra continues to be popular with used car buyers in 2020

“Wholesale prices declined 1.5 percent in May – a substantial improvement compared to April when prices dropped by 5.9 percent. As a result, Black Book’s Seasonally Adjusted Retention Index had a very respectable comeback in May, only dropping by 0.7 percent (vs. a 6.9 percent drop in April). The decrease in April was driven almost exclusively by the collapse in consumer confidence, along with high levels of uncertainty about the financial markets due to the COVID-19 pandemic. Since the middle of May, we have observed the stabilization of prices, as shelter-in-place orders are being relaxed throughout the country.”

The report also stated auction sales volume is “finally returning to pre-COVID-19 levels, although most auctions are still operating in a digital only environment.” Black Book also showed an increase in rental units sold, compared to previous weeks.

Black Book expects “a large, incremental influx of used inventory to hit the marketplace over the next six months, coming from prolonged lease return delays, downsizing of rental fleets (including the expected sell-off of a large number of Hertz’s units), increased repossessions, and un-sold inventory from the March-May time period.”

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