Major automakers reported a more than 30% drop in US sales in the second quarter, the biggest plunge in sales since the Great Recession and the auto bankruptcies of 2009.
Several of the top automakers reported quarterly sales Wednesday, and the weeks of pandemic-forced dealership closures hit them hard.
Sales were also hurt by record job losses limiting spending money, as well as mass work-from-home policies that temporarily put commutes on hold. Further, the closing of auto plants for much of the quarter limited the supply of new vehicles at the dealerships that were open, with popular vehicle models particularly hard to find.
General Motors, the largest US automaker, saw a 34% sales drop. Last week GM (GM) announced it will cut 700 jobs at a Tennessee plant later this summer because of the drop in demand for the SUVs built there. Still, GM (GM) said sales fell most sharply in April and showed signs of recovery in May and June.
“GM entered the quarter with very lean inventories and our dealers did a great job meeting customer demand, especially for pickups,” said Kurt McNeil, GM’s vice president of sales. “Now, we are refilling the pipeline by quickly and safely returning production to pre-pandemic levels.”
Fiat Chrysler (FCAU) reported a 39% decline in revenue, pointing to the drop in rental fleet sales. Rental car companies typically buy about 10% or more of US car sales in the course of a normal year.
But with the huge slowdown in travel, car rental companies have virtually halted their purchases. Meanwhile, Hertz (HTZ) filed for bankruptcy. And all the car rental companies are selling cars from their existing fleets, creating more competition for.
Toyota (TM) also reported a 35% drop in second quarter US sales, although it saw an improvement as the quarter progressed. June sales were off 22%, the company said.
Despite the signs of improvement later in the quarter, it’s unlikely there will be a rapid increase in sales throughout the summer, said Jonathan Smoke, chief economist for Cox Automotive. Cox is forecasting a 35% drop in total US sales for the second quarter once all the automakers report and the data are in.
A Cox survey showed one-third of those who intend to buy a car said they will delay their purchases, driven by factors such as general uncertainty in the market and continued unemployment concerns.
“The industry is facing the potential for a cruel summer for automotive sales,” Smoke said in a recent presentation.
Another auto research firm, LMC, projects a 33% drop in sales in the quarter and a 22% drop over the course of the full year.
“There is still plenty of risk ahead, with the possibility of continued outbreaks,” said Jeff Schuster, president of global vehicle forecasting for LMC, adding that some of the current sales are likely being driven by pent-up demand that could soon fall off.
To weather the current downturn, the major automakers have all been selling debt or taking out cash from previously arranged lines of credit to get the cash they need. But those moves pose new problems. Credit rating agency Moody’s on Tuesday downgraded more than $130 billion of automakers’ debt, warning that further downgrades are possible given the industry challenges not only in the United States but around the globe.
“Autos are among the industries coronavirus hit hardest and the pandemic adds to what were already substantial challenges for carmakers,” a note said. “We estimate vehicle sales will slump at least 20% in 2020 and will take several years to recapture 2019 levels.”