As a top ad category, the future of the American automotive industry is intertwined with the future of radio. At the height of the COVID-triggered lockdowns in April, U.S. auto sales fell an astonishing 43%, according to J.D. Power, which tracks 12 million new and used car sales per year at the retail level.
“The industry fell pretty far and pretty fast,” said J.D. Power VP Data & Analytics Tyson Jominy. Sales were off a less severe 10% during the summer months and now the latest data shows the industry’s “exit rate” for the year is strong. September and October brought two consecutive months of growth, up 6% and 2%, respectively. November was down only 2% and December is expected to be “a very good month” with positive year-over-year growth.
“On a year-to-date basis, we’re off about 11% on average across the nation but that’s not telling the whole story,” Jominy told an online audience of RAB members this week. “Where you are greatly matters.” For example, vehicle sales through November were down 17% in the New York, Los Angeles and Seattle markets. San Francisco was even worse, tumbling 24%. Other major markets with steep declines include Detroit (-13%), Phoenix (-10%) and Dallas (-8%). Vehicle sales were much stronger in the Sunbelt markets, which Jominy said corresponds with the severity of the pandemic and state-ordered lockdowns.
And some markets actually grew auto sales in 2020. Among them: Cheyenne (+6% YTD), Lincoln (+2%), Billings (+1%), Austin (+5%) and Corpus Christi (+8%). “The more rural and the more southern you are, the better the market is doing,” Jominy said during the RAB live streaming session, “Automotive’s Road To Recovery.”
But while sales are down, the average cost of a vehicle went sky high in 2020, up 7% year-over year or about $3,000 more per unit.
“Consumers are spending basically the same amount of money in the market this year than they were spending last year with a much higher sales base,” Jominy explained. “We've kept the dollars almost identical to year-ago levels with these much higher transaction prices.”
The pandemic impacted groups with lower incomes much more than well-off Americans and that had a direct impact on who bought vehicles in 2020 – and what kinds they purchased.“The greatest sales loss has been at the bottom of the industry,” Jominy elaborated.Sales of vehicles priced at $20,000 or lower plunged 35% this year. Meanwhile, sales of expensive luxury vehicles in the $70,000 range shot up 22%. “You see some pretty radical growth at the higher end of the market but there’s not a lot of volume there.” In fact most car sales are in the $20,000-$30,000 range, which were down 12%-15%.
Drilling down into segments, 2020’s biggest growth occurred in the “super premium” category (think Bentley, Rolls Royce, Ferrari), which grew 10% year to date. Large SUVs and midsize pickup trucks declined low single digits and almost all SUVs did better than the -11% average sales decline in 2020. Traditional cars took the biggest hit as consumers continued a years-long shift to SUVs and trucks, with triple the average industry decline in 2020 in some cases. “Consumers are still turning on cars at a rate not yet seen,” Jominy offered. “Their love for SUVs is growing more and more and these factors are part of what is driving transaction price growth.”
In other trends impacting the auto industry:
Manufacturers are struggling to keep up with demand. Attractive incentives and tight inventories mean vehicles are selling almost as fast as they’re arriving. Nearly a third of vehicles that arrive on dealer lots are turning in 10 days.
Online sales are here to stay. “COVID pushed the digital retail sales revolution forward,” Jominy said. “I think it’s going to be a permanent change.”
COVID didn’t push forward the plug-in market. While electric vehicle sales are growing globally, “they aren’t setting the U.S. market on fire,” said Jominy.
Loan terms are increasing. With new vehicle prices 7%-8% higher, consumers are opting for longer loan terms, some as high as 84 months.
The auto industry should end up with about 14.4 million in sales in 2020, per J.D. Power estimates, after five consecutive years in the 17.0-17.5 million unit range. While down significantly, it’s nowhere near as low as during the 2008-2011 period.
Next year the industry is expected to recover nearly one million in sales and return to 2013 levels. “We’re seeing a very consistent growth pattern,” Jominy said. “It’s a very robust industry.Consumers were far more resilient than initially believed. Transaction prices are on fire and it’s being driven by consumer demand that hasn’t let up.”