April was one of the best months in automotive retail historically, and May was expected to be similar. However, the seasonally adjusted annual rate (SAAR) reversed course by a fair margin, declining to 17.0 million. Contributing factors for the most recent completed month’s numbers are wide-ranging including faltering consumer sentiment and the new inventory shortage despite unemployment rates shrinking and fleet sales beginning to shine, according to the Cox Automotive Auto Market Weekly Summary.
The results are mildly surprising considering forecast revisions. Last week, J.D. Power president of the data and analytics division, Thomas King, said, “The U.S. auto industry is showing tremendous adaptability in maintaining a record sales pace, despite historically low inventory levels. May is usually one of the highest-volume sales months with buying activity peaking around the Memorial Day weekend when manufacturers typically offer incremental incentives.
“This year, notwithstanding supply constraints and significantly reduced incentives from manufacturers, May 2021 will be another record-breaking month for the industry. The industry will again set records in May for monthly sales volumes and aggregate retailer profits as well as all-time records for transaction prices, consumer expenditures and retailer gross per unit sold.”
It did not come to fruition as such. May’s SAAR of 17 million was down from April’s 18.8 million units. May 2020’s pandemic anomaly was just 12.1 million, but it represents a decline compared to May 2019’s SAAR which was 17.3 million.
Unemployment moving in the right direction
Although still higher than pre-pandemic, May’s unemployment rate shrank back to the lowest since the start of the pandemic, to 5.8%. Not only are more Americans returning to work, but the underemployment rate is also the lowest it’s been during the pandemic, signifying people are returning to meaningful positions to support their households.
Overall, 559,000 jobs were added to the US economy for the month including 1,800 in auto dealerships.
Fleet sales are finally returning
After many months of suppressed fleet sales in a topsy-turvy economy, companies are once again rejuvenating their commercial fleets. As a complete sector including large rental, commercial, and governments, fleet sales were up 222% for the month when compared to May 2020. Most notably, rental car buyers were extremely active, accounting for a 363% increase over May 2020, but still down 13% YTD. Commercial fleets were exceptionally strong also, showing a 193% improvement year over year.
Inventory levels still not showing major impact
At this point in the year, shrinking car sales were expected due to the manufacturing challenges at carmakers worldwide. Although inventory levels are dangerously low in many popular models, sales continue to forge ahead. Whether it’s sustainable until manufacturing recovers has yet to be seen, but it’s unlikely.
King said on May 27, “Low inventories have still not yet had a material effect on aggregate sales results. While inventory is still the primary threat to the maintenance of the current sales pace in the coming months, retailers, manufacturers, and suppliers have been able to adapt to maintain the sales velocity this year. The results are a record number of retail sales during the past three months at reduced discounts.
“However, with the sales pace still exceeding the rate at which vehicles are being produced, there is a rising risk to the industry’s ability to sustain the current sales pace in the coming months.”
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