CoVid-19 Industry Updates

CoVid-19 Industry Updates (169)

BBVA Research published its October auto sales chartbook, noting vehicle sales have experienced a V-shaped recovery, increasing 36 percent in the third quarter of 2020 from the previous quarter.  However, sales are still 10 percent below levels observed in Q3 of 2019.

The chartbook, authored by BBVA Research Principal Economist Marcial Nava, forecasts that sales could be affected in the long run by changes in consumer behavior resulting from the pandemic, including people relocating away from urban areas and the increasing rate of remote work among employees across the U.S.

Will the pandemic change consumer behavior over the long term?

There has also been an increased demand for used vehicles, which are better supplied than new units due to pandemic-induced disruptions in new vehicle production, according to the report.

According to the report, total new vehicle sales are expected to reach 14.5 million units in 2020, the lowest since 2012. Low interest rates, extended loan terms, higher personal savings and solid residential construction have all contributed to the resiliency of new vehicle sales, as have the rebound in the stock market and an increasing preference for car ownership.

Some segments do remain subdued, including fleet demand, due to sluggish airline and tourism-related activities, the report stated.

Sales of electric vehicles have also declined, down 41 percent year-over-year as a results of COVID-19, reduction in government incentives and the ongoing conflict between the federal government and the state of California over fuel economy standards, the reported stated.

Real gross domestic product (GDP) increased at an annual rate of 33.1 percent in the third quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 31.4 percent.

The GDP estimate is based on source data that are incomplete or subject to further revision by the source agency. The second estimate for the third quarter, based on more complete data, will be released on Nov. 25.

The increase in real GDP reflected increases in personal consumption expenditures (PCE), private inventory investment, exports, nonresidential fixed investment, and residential fixed investment that were partly offset by decreases in federal government spending (reflecting fewer fees paid to administer the Paycheck Protection Program loans) and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The increase in PCE reflected increases in services (led by health care as well as food services and accommodations) and goods (led by motor vehicles and parts as well as clothing and footwear). The increase in exports primarily reflected an increase in goods (led by automotive vehicles, engines, and parts as well as capital goods).

Currentdollar GDP increased 38.0 percent, or $1.64 trillion, in the third quarter to a level of $21.16 trillion. In the second quarter, GDP decreased 32.8 percent, or $2.04 trillion.

The auto loan default rate rose three basis points to 0.56 percent, according to the S&P Dow Jones Indices and Experian data through September 2020.
The indices represent a comprehensive measure of changes in consumer credit defaults and show that the composite rate was down four basis points to 0.63 percent.

The bank card default rate fell 45 basis points to 3.00 percent and the first mortgage default rate was two basis points lower at 0.46 percent.

 

All five major metropolitan statistical areas showed lower default rates compared to last month. Miami showed the largest decrease, down 19 basis points to 1.80 percent. New York was 8 basis points lower at 0.88 percent, while Los Angeles fell five basis points to 0.71 percent. The rate for Dallas dropped three basis points to 0.62 percent while Chicago was one basis point lower at 0.65 percent.

Among U.S. automobile dealers, 43 percent believe COVID-19 and the upcoming election are both equally concerning, according to a study released by the Cox Automotive Research & Market Intelligence team.

Pandemic concern peaked in the second quarter and has been moving steadily downward since summer. Still, with 61 percent of consumers extremely or very concerned about COVID-19, the pandemic and resulting economic struggles continue to weigh heavily on the vehicle market. The most recent data from Cox Automotive indicates the percent of consumers in market for a new vehicle, at 14 percent, has dropped to the lowest level in 2020.  

Digital Retailing provides a rare win-win for consumers and dealers.
Digital Retailing provides a rare win-win for consumers and dealers.

COVID-19: Tracking U.S. Consumer and Automotive Dealer Sentiment is ongoing research from Cox Automotive designed to shed light on consumer and automobile dealer attitudes and behaviors during the pandemic. The research began in late March and has been updated regularly through mid-October.

Concern over the pandemic peaked in April, with 71 percent of consumers extremely/very concerned. After dropping through the summer, consumer concern now stands at a still-high 61 percent. Among auto dealers, 43 percent believe COVID-19 and the upcoming election are both equally concerning. The prospect of another year like 2020 has consumers concerned for their financial stability, with 1 in 5 depleting their savings in 2021 should the pandemic continue.

Asbury Automotive Group Inc. expects net income per diluted share to be between $4.88 and $4.96, and adjusted net income per diluted share (a non-GAAP measure) to be between $4.00 and $4.08, which would be an increase of between 72 percent and 75 percent from the prior year quarter adjusted net income per diluted share of $2.33. 

These preliminary financial results are for the three months ended Sept. 30. Asbury net income for the third quarter 2020 is expected to be adjusted for a $24.7 million ($0.96 per diluted share) gain on a dealership divestiture, $1.3 million ($0.05 per diluted share) of acquisition related costs and a $0.7 million ($0.03 per diluted share) real estate related charge.

The company expects same store gross profit to be up between 6 percent and 7 percent, and it expects SG&A as a percentage of gross profit to be between 61 percent and 62 percent. “Our strong margins, disciplined expense management and the continued recovery in parts and service once again drove solid operating performance in the quarter.  In addition, we were able to close on the largest acquisition in Asbury’s history with the Park Place stores,” said David Hult, Asbury’s President and Chief Executive Officer.

Asbury’s financial closing procedures for the three and nine months ended September 30, 2020 are not yet complete and, as a result, the final results upon completion of closing procedures may vary from these preliminary estimates. Estimates of results are inherently uncertain and subject to change, and Asbury undertakes no obligation to update this information. These estimates should not be viewed as a substitute for interim financial statements prepared in accordance with United States GAAP. Asbury’s independent registered public accounting firm has not conducted a review of and does not express an opinion or any other form of assurance with respect to, these preliminary estimates.

Asbury also announced that it will release its third quarter financial results before the market opens on October 27, 2020. 

New research from Cars.com, a digital automotive marketplace and solutions provider, finds that 61 percent of recent car buyers said they would want their newly purchased car delivered at home from their local dealership. And dealers are responding in kind: Local dealerships offering home delivery services are up 35 percent since March.

“During the start of the pandemic, and certainly far beyond, consumers have turned to personal car ownership as their preferred and safe mode of transportation,” said Alex Vetter, CEO of Cars.com Inc. “While the technology and digital retailing tools are not new to the industry or CARS, there is a noticeable increased usage driven by shopper demand and dealers are rapidly shifting their strategies to meet this new consumer expectation.”

Research from Cars.com shows demand is growing for home delivery and virtual car-buying options from dealerships; people are still buying cars and the main reason is COVID-19. Of those who purchased a car within the last six months, 57 percent said the pandemic accelerated online car shopping and buying. Walk-in traffic to dealership showrooms is still down 15 percent nationwide, largely replaced by digital visits as consumers prefer to stay home and shop from afar. And 57 percent of recent buyers said they conducted the bulk of the vehicle transaction online with their local dealership. Cars.com reports an increase of 30 percent in contact and user engagement for dealers offering home delivery and virtual options versus those still offering the traditional showroom experience.

Dealers are meeting consumers on their turf — their homes. In March, at the start of the pandemic, 49 percent of dealers said they offered home delivery services. By August, 66 percent offered the services, an increase of 35 percent in less than half a year. Approximately 20 percent of recent car buyers used home delivery from their local dealership, while 61 percent of recent buyers state they would use this service from their local dealership if it were offered, showing sustained interest in this growing trend.

Four years after its initial rollout, RightSure has announced more enhancements to its RightRater auto insurance platform used by car dealerships across the nation.

Dealerships offer the RightRater platform to their customers because easily accessible coverage translates to fewer lost auto sales. RightRater is instantly available by snapping a QR code, and capable of shopping coverage with more than 45 carriers within 90 seconds.

"Dealerships that don't use RightRater are at a serious competitive disadvantage," said RightSure President Jeffery Arnold. "It's counter-productive to spend all the time it takes to help buyers find their perfect vehicles, and then to lose sales because of something as mundane as insurance."

RightRater empowers car buying customers to secure coverage and proof of insurance anytime 24/7, eliminating the sales attrition that occurs after hours and on weekends when car buyers are unable to reach their insurance agents. In the four years since RightRater was introduced, it has facilitated insurance for more than 60,000 drivers, with nearly $100 million in premiums.

Car buyers simply use their smartphones to snap a QR code and instantly access RightRater. Buyers can then customize and purchase their coverage and instantly receive their insurance ID cards on their phones. The whole process can be completed in as little as 90 seconds.

The latest improvements include a faster, sleeker, mobile-friendly interface and more options for buyers.

Experts at Edmunds state the third quarter represents a positive turning point for the automotive industry despite challenges presented by the COVID-19 pandemic. Edmunds analysts forecast that 3,850,707 new cars and trucks will be sold in the U.S., which reflects an 11 percent decrease from the third quarter of 2019 but a 30.6 percent increase compared to the second quarter of the year.

“Third-quarter sales make at least two things apparent: Most of the doomsday scenarios forecasted at the beginning of the pandemic fortunately did not hold true, and the American consumer stepped up to become one of the many heroes in this chapter of resilience for the automotive industry, “ said Jessica Caldwell, Edmunds’ executive director of insights. “Consistently lower interest rates encouraged new-car buyers — who were less likely to be financially hindered by the economic fallout of the pandemic — to pull the trigger on a purchase. Rising used vehicle prices also likely made the new car market more appealing for shoppers on the fence between the two. And car owners also got to leverage the extra value that trade-ins are commanding during COVID-19 to offset the cost of their next purchase.”

Although retail sales have shown positive growth, Edmunds experts note that fleet sales continue to struggle during the pandemic. Edmunds estimates that fleet transactions will account for 10.8 percent of total sales for the third quarter, compared to 17.2 percent in the third quarter of 2019 and 13.2 percent last quarter.

“The last piece of the puzzle for the industry’s recovery is fleet sales,” said Caldwell. “Daily rental companies have understandably reduced or delayed orders as Americans continue to stay at home rather than embark upon business or air travel. It will likely take a bit longer for this side of the business to make as dramatic a comeback as its retail counterparts.” 

QUARTERLY SALES VOLUME FORECAST, BY MANUFACTURER

SALES
VOLUME

2020 Q3
Forecast

Q3 2019
Sales

Q2 2020
Sales

Change from
Q3 2019

Change from
Q2 2020

GM

634,261

738,638

492,489

-14.1 percent

28.8 percent

Toyota

549,567

627,194

398,029

-12.4 percent

38.1 percent

Ford

534,290

580,251

433,869

-7.9 percent

23.1 percent

FCA

513,872

565,034

367,086

-9.1 percent

40.0 percent

Honda

394,229

429,214

293,502

-8.2 percent

34.3 percent

Hyundai/Kia

337,533

334,834

270,699

0.8 percent

24.7 percent

Nissan

220,645

327,354

177,328

-32.6 percent

24.4 percent

VW/Audi

132,550

150,578

101,605

-12.0 percent

30.5 percent

Industry

3,850,707

4,326,243

2,948,126

-11.0 percent

30.6 percent

QUARTERLY MARKET SHARE FORECAST, BY MANUFACTURER

Market Share

2020 Q3
Forecast

Q3 2019
Sales

Q2 2020
Sales

Change from
Q3 2019

Change from
Q2 2020

GM

16.5 percent

17.1 percent

16.7 percent

-3.5 percent

-1.4 percent

Toyota

14.3 percent

14.5 percent

13.5 percent

-1.6 percent

5.7 percent

Ford

13.9 percent

13.4 percent

14.7 percent

3.5 percent

-5.7 percent

FCA

13.3 percent

13.1 percent

12.5 percent

2.2 percent

7.2 percent

Honda

10.2 percent

9.9 percent

10.0 percent

3.2 percent

2.8 percent

Hyundai/Kia

8.8 percent

7.7 percent

9.2 percent

13.3 percent

-4.5 percent

Nissan

5.7 percent

7.6 percent

6.0 percent

-24.3 percent

-4.7 percent

VW/Audi

3.4 percent

3.5 percent

3.4 percent

-1.1 percent

-0.1 percent

New-vehicle retail sales in September are expected to be up from a year ago, according to a joint forecast developed jointly by J.D. Power and LMC Automotive. Retail sales are projected to reach 1,157,800 units, a 3.4 percent increase compared with September 2019. Reporting the same numbers without controlling for the number of selling days translates to an increase of 12.4 percent from a year ago. While the increase vs. September 2019 is substantial, it’s important to recognize that it is being aided by the industry sales reporting calendar. September 2020 contains two additional selling days than September 2019 and has the added benefit from promotional activity related to the Labor Day weekend, which last year fell into August sales reporting.

Total sales in September are projected to reach 1,288,100 units, a 7.5 percent decrease from September 2019. Reporting the same numbers without controlling for the number of selling days translates to an increase of 0.5 percent from September 2019. The seasonally adjusted annualized rate (SAAR) for total sales is expected to be 15.7 million units, down 1.6 million units from a year ago.

“Retail sales in September are poised to post the first year-over-year gain since February, a milestone in the recovery from the disruption that COVID-19 has had on the industry,” said Thomas King, president of the data and analytics division at J.D. Power. “While the results are flattered by the Labor Day holiday falling within the month, the performance points to strong underlying consumer demand for new vehicles. This is despite tight inventory for many of the most popular vehicles.”

The average number of days a new vehicle sat on a dealer lot before being sold is on pace to fall to 56 days, the first time below 60 days in five years. Additionally, more than 45 percent of all vehicles sold in September will have spent fewer than 20 days on dealer lots.

This is enabling manufacturers to reduce overall new vehicle incentives and retailers to reduce the discounts off MSRP that have historically been offered. Incentive spending is expected to fall to the lowest level since July 2019. Concurrently, the average trade-in value has risen to $4,951, an increase of $634 or 14.7 percent from a year ago.

The North American International Auto Show (NAIAS) announced it will move its reimagined indoor and outdoor show, originally planned for summer 2021, to Sept. 28 – Oct. 9, 2021. NAIAS officials say the show is teed up to be a global powerhouse of current product and next-generation mobility combined with immersive brand activations and product engagement for both the international media and the public.

“We have talked with many of our partners, particularly the OEMs, and they are fully on board and excited about the date change,” NAIAS Executive Director Rod Alberts said.

NAIAS will remain a fall show going forward after the inaugural event in September 2021. Show dates have already been secured with TCF Center for the next three years. NAIAS organizers secured dates toward the end of the month, in part, to be mindful of the new IAA in Munich, which is scheduled for the first full week in September.

“Our responsibility as an auto show is to host a global stage for current products as well as mobility innovations of tomorrow,” Alberts said. “September is an excellent time of year for new product, and at the same time, alleviates the challenges a now crowded spring auto show calendar presents for auto show stakeholders.”

“Spreading out major auto shows is a win for everyone, particularly our partners. It gives auto companies an opportunity to give it their best at each and every show, which creates excitement for those who attend, too,” Alberts said.

NAIAS officials also plan to expand the show’s marketing reach, drawing additional show visitors from beyond the region and state. The campaign will emphasize that consumers can preview all of the latest new cars and trucks headed to dealership showrooms while also enjoying Detroit and Michigan in the fall.

“With seasonable autumn temperatures and technology and experiential activations positioned throughout the city, show visitors will be able to enjoy fall in a walkable, vibrant Motor City while embracing the future of the industry right before their eyes,” 2021 NAIAS Chairman Doug North said.

North said the September 2021 show will include the same memorable product experiences that were originally planned for the June show, including dynamic displays and experiential ride-and-drives. The NAIAS campus will include product and technology activations both inside TCF Center and throughout the city.

NAIAS will continue to host seven unique shows in one: Motor Bella, The Gallery, Press Preview, AutoMobili-D, Industry Preview, Charity Preview and Public Show.

Additionally, NAIAS is launching a new virtual thought leadership series, Q’d Up Mobility. The monthly series will provide a glimpse into what the 2021 show has queued up for guests.