Quarterly Sales Reports? The Last Half of March Is Where the Action's At

We’ll have a full tally of first-quarter U.S. auto sales for you tomorrow, but the expected declines in volume have far more to do with what happened in the past two weeks than anything afflicting individual companies in the months prior. If your gig is industry analysis, things have never been wilder.

Analysts at J.D. Power had their hands full tabulating exactly what happens when 265 million Americans are suddenly told not to leave their homes.

The health crisis the country finds itself in has industry watchers chopping sales predictions like a deranged barber. After initially projecting 16.8 million total new vehicles sales in 2020, J.D. Power now sees the industry unloading just 12.1 to 14.8 million vehicles — a volume loss of 10 to 30 percent.

Anything can happen in the coming months, but let’s take a look at what’s become arguably the most tumultuous month in industry history. Through March 29th, U.S. retail sales fell 33 percent below the pre-coronavirus forecast.

“The pace of decline, on a daily basis, has been accelerating throughout the month,” said Tyson Jominy, J.D. Power’s vice president of automotive data and analytics consulting, during a Wednesday webinar. “We had a small drop at the beginning, followed by a 15-percent decline two weeks ago, a 36-percent decline in the previous week, and now, this past week, a 61-percent decline in retail sales.”

Jominy added that the exit rate of sales “was down 66 percent on Saturday, before falling 82 percent for Sunday.”

By Wednesday night, some 39 states will have some form of stay-at-home order in effect to combat the growing COVID-19 pandemic. Depending on where you live, it might be impossible (or almost impossible) to purchase a car, or business might be humming along almost like normal. Dealers in states with bans on digital sales models find themselves in an even tougher spot. Obviously, the hardest hit markets showed the biggest drops for the months; among them, New York City and Detroit, where sales dropped nearly 100 percent after the fast-spreading virus forced both cities to issue stay-at-home orders.

Still, some markets — and segments — showed resilience in March, with cities like Dallas, Houston, Phoenix, Tampa, Orlando, and Minneapolis bucking the trend. Add the light truck segment to that list, too. Despite plunging 61 percent last week, the industry’s rapid decline wasn’t spread evenly across all areas. Sales of big-margin light trucks fell only 27 percent in this time frame — the result of automakers everywhere showering customers with zero-percent financing, huge incentives, and lengthy loan terms.

Some truckmakers are even flaunting six-month payment deferrals to sweeten the pot. Not surprisingly, many customers swallowed the bait, despite being completely out of toilet paper.

“There are unprecedented deals available on pickups, or at least the majority of pickups, at this time,” said Thomas King, president of the Data & Analytics division at J.D. Power. “In particular, there’s the availability of 84-month loans at zero-percent interest rates for well-qualified buyers, and in some cases also the opportunity to defer payments for up to six months. Pickups are expensive vehicles, that means that the savings you get from a reduced interest rate are very, very powerful, and we’re certainly seeing a lot of consumers take advantage of this.”

Typically, only about 7 to 8 percent of new vehicle buyers opt for an 84-month term, but the final two weeks of March brought a popularity surge. During the week of the 29th, 23 percent of U.S. buyers signed up for seven years of lowered monthly payments, surpassing even the number of people who opted to lease. Some 46 percent of truck buyers during that time frame drove away with a zero-percent, 84-month loan.

So great was the demand for American truck models compared to literally everything else, Detroit Three market share grew to 51 percent last week — the fattest slice held by domestic automakers since 2006. Typically, that share lands around 38 percent.

As OEMs tried everything to move metal, the amount of cash automakers spent, on average, to offload those vehicles hit new heights. The average incentive spend per vehicle hit $4,800 in the week ending March 29th, up from a previous high of $4,600 on December 1st of last year. Light-duty trucks, not surprisingly, saw a hood-crumpling amount of cash heaped upon them, with average incentive spend in that segment hitting $7,200 per vehicle — up a whopping $500 from the previous record (again, Dec, 1, 2019).

As wild as things got in the final half of March, the current month of April stands to be even tougher — for OEMs, dealers, and those who would have, in the absence of the coronavirus, picked up a new vehicle for the coming driving season. We’ll have more analysis on that tomorrow.

[Image: Fiat Chrysler]