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U.S. auto sales stay on recovery path despite tight inventory

Published 10/01/2020, 03:09 AM
Updated 10/01/2020, 03:16 PM
© Reuters. A Hyundai logo is seen at Hyundai of Serramonte in Colma, California

© Reuters. A Hyundai logo is seen at Hyundai of Serramonte in Colma, California

By Rachit Vats

(Reuters) - The U.S. auto sector on Thursday continued to show signs of a recovery from the COVID-19 pandemic as improving demand in the third quarter for new vehicles has General Motors Co (N:GM) and other major automakers scrambling to boost production to rebuild dealer inventories.

While sales in the quarter were down, the trend was positive as demand increased each month, especially among retail consumers for high-profit sports utility vehicles and pickup trucks, industry officials said.

"While the economy has made a substantial rebound in the third quarter, retail auto sales have been even more resilient," GM Chief Economist Elaine Buckberg said. "Super-low auto loan interest rates have boosted retail auto sales; yet more strength comes from pandemic-induced demand."

The third quarter is usually when the industry starts building new models, and piling up inventory for the holiday season. That transition is way behind the normal schedule this year due to the earlier shutdown caused by the outbreak and the initial slow ramp-up in production.

Industry inventories for full-size pickup trucks, for example, stood at 500,000 vehicles heading into Labor Day this year, down from 900,000 last year, according to J.D. Power analyst Tyson Jominy.

GM, which reported a 10% decline in third-quarter sales but said results improved each month, said the seasonally adjusted sales pace for the quarter was expected to be 15.9 million vehicles, up about 4 million vehicles from the previous quarter.

The U.S. auto sector has held up better than other industries, but automakers had a hand in that with aggressive incentives like zero-for-84 months financing, payment deferrals and job assurance programs, J.D. Power's Jominy said.

Automaker profits are also getting a boost.

Vehicle prices rose 2.5% in September from last year to an average of more than $38,700, Kelley Blue Book said. And incentive spending in the industry fell for the second straight month in September, the first time that has happened since April 2019, Jominy said.

"Automakers are going to report some pretty monster financial quarters here to close a year," he said. "They're running the assembly plants flat-out right now and incentives are falling. There's a lot of positive financial indicators right now in the market." Toyota Motor (NYSE:TM) Corp's (T:7203) U.S. sales fell 11% in the third quarter, but were up 16% in September.

Fiat Chrysler Automobiles NV (N:FCAU) (MI:FCHA) reported a 10% fall in U.S. sales in the quarter, but they were 38% higher than the prior quarter and the company cited strong consumer demand.

“We are optimistic about the U.S. market and expect sales to remain strong as we close out 2020,” FCA's U.S. sales chief, Jeff Kommor, said.

Nissan (OTC:NSANY) Motor Co (T:7201) echoed the theme of improving retail sales despite a 32% decline in the quarter.

© Reuters. Toyota trucks are shown on a car carrier for delivery after arriving in the United States in National City, California

"From an industry perspective, consumer confidence in the market is rising," said David Kershaw, Nissan's North American sales chief.

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