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U.S. Auto Sales Recover in May: Can Carmakers Bounce Back?

Ritujay Ghosh

U.S. auto sales declined year over year in May but showed signs of recovery from the dismal April figures, as states eased restrictions and car dealers opened stores. Moreover, most automakers opened their factories in North America and workers have started returning to work, indicating speedier production in the coming days.

Although it is a long path to recovery — something that could take years — automakers are hopeful that sales are likely to pick up with most gearing up to open their plants in Mexico as soon as this month. The auto industry was already struggling and the coronavirus outbreak put further brakes on car sales.

Auto Sales Shows Signs of Recovery

The pace of vehicle sales picked up in May, averaging 12.2 million vehicles on an annualized basis, according to Autodata. If the same number of vehicles is sold every month throughout the year, it would amount to the total sales of the auto industry for 2020. That compares with an annualized sales rate of 8.6 million vehicles in April. 

Auto research firms had expected new vehicles sales to decline slightly to 1.1 million vehicles in May, down around 32% year over year. Automakers sold around 17 million vehicles in 2019 and the industry still has a long way to go to surpass that figure. The coronavirus pandemic completely shattered the auto industry, with carmakers temporarily shutting plants and dealers closing showrooms.

However, the jump in May was primarily because automotive firms embraced online sales and historically generous incentives to get people into new vehicles. That effort drew a substantially better picture for May, as companies beat earlier estimates suggesting that the the worst effects of the COVID-19 crisis on sales would linger through summer.

Although sales are nowhere close to the year-earlier figures, many carmakers say that May sales beat expectations. Toyota Motor Corporation TM reported a decline of 25.7% in sales last month from May 2019. However, it said sales of more than 165,000 vehicles for the month still managed to top internal expectations of 125,000 vehicles. Most U.S. carmakers, except for Fiat Chrysler Automobiles N.V. FCAU, report quarterly sales. So their sales performance in May is still unknown.

Automakers Add Shifts to Make Up for Loss

Almost all U.S. and foreign carmakers finally started reopening their factories in the country as states started lifting restrictions in May. Since restarting U.S. production on May 18, General Motors GM has slowly been increasing output at its North American plants. The carmaker plans to return to American plants that produce pickup trucks such as the Chevrolet Silverado to pre-coronavirus levels of three shifts. Other plants that produce cars and crossovers for General Motors have also added shifts or are reopening this week, according to the company.

Ford Motor Company F also started four of its plants, including those that produce its bestselling F-Series pickups, in May. According to a Ford spokesperson, the company has added second shifts at plants in Kansas City, MO, and Louisville, KY from Monday. Fiat also plans to have the majority of its U.S. workforce, roughly 85%, and plants return to work by this week, according to company spokeswoman Jodi Tinson.

Also Tesla, Inc. TSLA opened its California plant in early May. The electric carmaker has taken a different route to boost sales. The company, last week, reduced the price of its Model 3, Model S and Model X in North America. Model S and Model X each saw $5,000 price cuts for their entry-level Long Range Plus versions, while the base price of Model 3 has been cut by $2,000. Tesla has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Moreover, General Motors and Ford are canceling some or all of their usual summer breaks for many assembly plants to make up for lost production during the two-month shutdown due to the coronavirus pandemic.

Needless to say, carmakers are putting in all efforts to ramp up production over the next few months to boost sales. Also, they are cutting prices and giving incentives to lure more buyers despite massive job losses over the past couple of months.

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