U.S. new vehicle sales remained stuck in low gear in the second quarter of 2022. The persistent microchip shortage has been crippling the auto industry for over a year. The last month marked the 12th straight month of year-over-year decline in U.S. new vehicle sales. After a difficult first quarter, auto sales continued to slump during the April-June 2022 timeframe as parts shortage choked supplies and low stockpiles put the automakers on edge.
Per Cox Automotive, the overall sales decline was even greater than anticipated. June sales volumes came in at 1.125 million, lower than the forecast levels of 1.2 million units. The seasonally adjusted annual rate (SAAR) for June declined to around 13 million units from 15.43 million in the year-ago period. Prior to COVID, SAAR had topped 17 million vehicles for five straight years from 2015 to 2019.
F Bucks Industry Sales Trend, GM Outsells TM in Q2
Most of the auto biggies recorded a double-digit decline in U.S. sales volumes for second-quarter 2022 but Asian automakers were hit harder than the U.S. counterparts. Japan’s top automaker
Toyota
’s
TM
sales tumbled 23% year over year to 531,105 units.
Its close peer
Honda
HMC
saw its U.S. sales plunge 51% year over year, citing “severe second-quarter supply issues.” Other Japanese auto bigwigs including Mazda and Nissan suffered a rough second quarter as their volumes contracted 43% and 39% to 60,535 and 172,612 vehicles, respectively.
HMC currently carries a Zacks Rank #4 (Sell).
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U.S. legacy automaker
General Motors
’
GM
sales declined 15% year over year to 582,401 vehicles. Deliveries of Chevrolet, GMC, Buick and Cadillac brands skid 11%,14%, 56% and 6.7%, respectively. Nonetheless, the company managed to reclaim its U.S. sales crown in the second quarter after losing it to Toyota in 2021 and the first quarter of 2022.Toyota had dethroned GM as the top-selling automaker of the nation in 2021 amid the chip crisis. That was the first time that a foreign automaker outsold a Detroit counterpart in U.S. auto sales for an entire calendar year in the industry’s 120-year history.
Meanwhile, GM’s close peer
Ford
F
was a clear outlier, bucking the trend of declining sales in the second quarter. Ford sold 483,688 vehicles in the United States, edging up 1.8% year over year. The company exited the second quarter with 297,000 units of gross stock, which was up from about 236,000 in gross stock inventory at the end of May, although many of the new units are in transit.
Italian-American carmaker
Stellantis
STLA
saw its sales tumble 16% year over year, from 485,312 to 408,521 vehicles, marking the fourth consecutive quarter of decline.The sales numbers were down across the bulk of their lineups, except for a handful of models. Jeep was down 11%, Ram 27%, Dodge 30% and Alfa Romeo 39%. Fiat sold a meager 249 vehicles in the quarter, declining from 891 in the year-ago period.
Tight Inventory Levels Remain Key Pain Point
The mounting shortage of semiconductors has left the industry in disarray since mid-2021. Just when industry watchdogs and auto giants were predicting the chip deficit to gradually start easing out from mid-2022, the geopolitical conflict between Russia and Ukraine triggered the second round of global microchip shortage. That, coupled with recent COVID-induced lockdowns in China, has aggravated the chip crisis and supply chains, with automakers again being forced to slash production plans, profit targets and halt operations.
Nissan’s top U.S. sales executive opined that China’s recent COVID curbs again dented production plans just at a time the automaker was adapting to operating with a leaner inventory. General Motors indicated that its second-quarter sales and profit will take a hit from the 95,000 vehicles it wouldn’t be able to sell amid the lack of chips to complete them.
Low inventory levels will continue to be a drag on the auto industry. June marked the eighth-consecutive month recording retail inventories below 900,000 cars and light trucks, per J.D. Power and LMC Automotive. And the inventory shortage issues are only going to persist in the near term.
General Motors’ reported vehicle inventory was about 248,000 units at the end of the second quarter, down 9.5% from the end of March, when it had about 274,000 vehicles in its U.S. inventory. Hyundai exited June with 17,922 cars and light trucks in U.S. inventory, down from 18,641 in May and 67,992 at the end of June 2021. Notably, Toyota had just 17 days’ vehicle supply in June, lower than half the 41 days’ supply that General Motors and Ford were carrying at that time, per Cox Automotive. The executive vice president of sales at Toyota’s North American operations is of the view that the chip crisis won’t abate until the summer of 2023 and it will get difficult to meet the robust consumer demand even after factories operate in full swing.
Testing Times to Prevail
Supply-chain disruptions are likely to linger through the year and even into 2023. Automakers will battle additional supply chain snafus in the wake of the Russia-Ukraine war.The only bright spot for automakers currently is the rising average prices of vehicles amid the supply-demand mismatch. Per automotive researcher Edmunds.com, the average selling price (ASP) of a new vehicle in the United States rose around 13% year over year in May to roughly $47,000.
But rising sticker prices may soon prompt consumers to put these discretionary expenses on hold owing to recessionary fears. Demand might take a hit amid inflationary concerns. With inflation at levels not seen in decades, the Fed has been forced to become more aggressive, cranking borrowing rates. This monetary policy tightening, paired with geopolitical issues and supply chain bottlenecks, has created a challenging macroeconomic backdrop.
Higher interest rates are increasing the cost of financing a new vehicle. The average monthly payment on a new car loan was almost $700 in June, up 13% from a year ago. Affordability concerns, inflation and weak consumer sentiment, are also starting to pose threats to the auto market outlook in addition to chip dearth. In the face of economic slowdown concerns and the absence of a quick solution to the chip problem, automakers have to brace for tougher times ahead.
In view of such headwinds, Cox Automotive has lowered its US new-vehicle sales forecast for 2022. It now projects new car sales of 14.4 million units this year, down from the prior projection of 15.3 million units. At current sales rates, sales volumes this year will likely finish below the pandemic year of 2020.
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