Production shutdown during pandemic leaves supply short and
lessens need to discount
By Mike Colias and Ben Foldy
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (June 4, 2020).
As the U.S. auto business restarts, car buyers returning to
showrooms are likely to confront a frustrating reality: slimmer
pickings and fewer deals on the new-car lot.
Many dealerships are running low on some of their most popular
vehicles, after sales of cars in some parts of the country fared
better than expected amid Covid-19 lockdowns, say industry
executives, analysts and auto retailers, and that is leading to
fewer vehicles to sell and less need to discount them.
Car companies are slowly ramping up production at U.S. factories
following an industrywide shutdown lasting nearly two months. But
restoring full output is expected to take several weeks, and
dealers say that won't be fast enough to replenish stocks before
the summer-selling season.
"We've finally been selling cars again, and now we're going to
run out," said Gordie Stewart, a Toyota dealer near Birmingham,
Ala. He has about 200 vehicles on his lot, down from about 550
normally at this time, and worries his inventory of Toyota Motor
Corp.'s mainstay SUVs, such as the Rav4 and Highlander, will soon
evaporate.
U.S. auto sales showed signs of recovery in May as many
dealerships reopened and states rescinded lockdown orders. Car
companies sold roughly 1.1 million vehicles last month, down 30%
compared with May 2019, but an improvement from April, when sales
dropped nearly 50% over the prior-year period, according to
industry research firm Wards Intelligence.
A surge in people returning leased vehicles -- many of whom were
granted extensions because their leases expired during lockdowns --
will also flood showrooms in the coming weeks, further boosting
demand.
The pandemic, which has upended supply chains and brought
manufacturing lines to a halt, has led many businesses to limit
options in recent months. Customers accustomed to a wide selection
are now having to adjust decisions on everything from staples like
meat and toilet paper to big-ticket purchases like homes and
cars.
Auto makers have trod a delicate balance since the pandemic hit.
With consumer demand crashing, car companies offered deep discounts
and promotions early in the health crisis, which helped sales of
new vehicles -- especially pickup trucks -- hold up better than
many analysts had predicted.
Many dealerships also shifted to online sales, a previously
uncommon practice that has grown in popularity and helped lift
business while customers were stuck at home. But now, the supply
crunch is limiting selection for buyers and leading to a pullback
on big incentives, such as the zero-interest, seven-year loans that
became prevalent this spring, analysts and industry executives
say.
Ford Motor Co.'s U.S. sales chief, Mark LaNeve, said Tuesday
that auto-industry spending on discounts and sales promotions
moderated in May and is likely to drop further in June as
inventories get thinner.
"On certain vehicle lines, we're starting to feel the pinch," he
said, referring to the Ford Ranger pickup and Explorer and Escape
SUVs.
Overall, new-vehicle U.S. inventory fell 32% in May, to about
2.6 million vehicles on dealer lots, the lowest in recent years,
according to data from researcher Motor Intelligence. Stocks are
expected to remain around that level this month as auto makers
strain to lift production, with shortages more severe on certain
models and in some markets, research firm J.D. Power says.
"Consumers are going to be forced to compromise," said Thomas King,
J.D. Power's head of analytics.
Among the vehicles in the shortest supply are the big, pricey
pickup trucks that have long juiced profits for Ford, General
Motors Co. and Fiat Chrysler Automobiles NV.
Barclays, in a research note Monday, warned of a "critical risk
of supply shortages" of large pickups, estimating dealers had only
about 44 days of inventory before running out of popular models,
such as the Ford F-150 and GM's Chevrolet Silverado. That is about
half the truck stock they had a year earlier.
The inventory crunch adds another challenge to the auto
industry's recovery efforts. High unemployment and tightening
credit also are expected to dent the U.S. car business this year,
after an unprecedented stretch of five years in which U.S. vehicle
sales topped 17 million. Sales are expected to sink by more than
25% this year, to around 12.7 million, according to IHS Markit.
More lenders tightened their standards for auto loans last
quarter than in any quarter since at least 2011, according to
survey data collected by the Federal Reserve. Borrowers with credit
scores below 660 accounted for 16% of new retail sales in May, down
from 21% in March, according to J.D. Power data.
For now, auto factories that have been slowly increasing output
since mid-May are struggling to meet even depressed demand and have
prioritized output of pickup trucks, executives have said. Dealers
say vehicles typically take more than a month to hit stores from
when they roll off the assembly line.
Brad Sowers, a Chevrolet dealer with several stores in Missouri,
said his main St. Louis-area store has about 100 Silverado pickups
versus 400 normally. The largest, most popular versions of the
trucks have almost run out.
"We'll be out of Silverados sometime in June," he said.
GM on Monday brought back thousands of workers at its two
large-pickup factories in the U.S. as the auto maker works to
resume round-the-clock output, up from eight-hour shifts over the
past two weeks. It also will run its plants through its traditional
two-week factory shutdown this summer to make up for lost output, a
spokesman said.
The pandemic fallout also has tripped up some high-profile
vehicle rollouts, including a new version of the Chevrolet
Corvette. Stingray Chevrolet near Orlando, a major Corvette dealer,
sold about a dozen of the new models before the pandemic, but now
has none, dealer Steve Hurley said.
Some auto shoppers say popular models are difficult to find.
Jacob Walla, a 27-year-old psychology student in Bryan, Texas, has
called dealers across the state looking for a Kia Telluride SUV,
but finding one with the features he and his husband want has been
nearly impossible. "We didn't want to pay the price we were going
to pay for fewer features," he said. "It's just hard to
swallow."
Kia Motors Corp. is working to increase production for the
Telluride after the Georgia factory where it is assembled was
closed by the pandemic, a company spokesman said.
Mr. Walla said the couple is considering placing a custom
factory order. They were told not to expect delivery until October
at the earliest, he said.
Corrections & Amplifications IHS Markit said U.S. vehicle
sales are expected to sink by more than 25% this year. An earlier
version of this article incorrectly said that IHS Automotive
provided the figures. (Corrected on June 3.)
Write to Mike Colias at Mike.Colias@wsj.com and Ben Foldy at
Ben.Foldy@wsj.com
(END) Dow Jones Newswires
June 04, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.