Make Or Break? Auto Industry Holds Its Breath Over Memorial Day Sales – Forbes


Memorial Day weekend is traditionally one of the biggest auto sales periods in the year. Of course, most years we are not faced with a global pandemic and associated business shutdowns, lockdowns, and layoffs. In the face of the deadly virus spreading across the country, the U.S. auto market has shown itself to be remarkably resilient, but this coming weekend could be a watershed moment in which the car market proves that it is accelerating rapidly on the comeback trail or reveals that the virus’s damage to the economy is deeper and more far-reaching than many expected.

As we approach the weekend, the facts don’t strongly point in one direction or the other. After a low point late in March when sales were 59% below J.D. Power’s pre-virus forecast, U.S. auto sales experienced a six-week-long resurgence. A report penned by Tyson Jominy, J.D. Power vice president, PIN Consulting, noted that sales showed a consistent rate of recovery of 4-8 percentage points per week over that span. But this past week was another story. Sales didn’t improve and stood at 27% below the market research firm’s pre-virus forecast.

So is the six-week run of steady increases the trend? Or is the pause indicative that whatever recovery the market experienced recently has stalled and is likely to flame out in light of ongoing economic hardships caused by business failures and furloughs that turn into layoffs?

J.D Power is bullish about the short-term prospects but is less willing to commit to a rapid recovery scenario for the balance of the year.

“Fundamentally, the industry is poised to realize strong sales volumes in the near term due to the return of large numbers of customers who delayed purchases planned for March, April and May, assisted by the availability of compelling incentive offers,” Jominy said. “Sales will be further assisted by the resumption of business across the nation and the relaxation of dealership showroom restrictions in many regions.”

That certainly speaks to a strong Memorial Day weekend for the retail auto industry. One perhaps ironic indication of that is the fact that some auto manufacturers are now beginning to dial down some of the most compelling incentive offers they brought to market in March and early April. For example, General Motors dropped the 120-day deferral portion of its 0% financing offering at the end of April, though it still offers 120-day deferrals on other interest rate deals.

Still, Memorial Day will put some highly motivational sales incentives in front of consumers. They are especially strong for consumers who seek to buy their next vehicle. J.D. Power found the average value of financing incentives was $5,700 for the week ending May 17, up markedly from $4,000 at the beginning of March. At the same time, manufacturers are offering lease deals that are essentially on par with those offered prior to the virus. The average value of a lease incentive was $7,100 for the week ending May 17, compared with $6,800 at the beginning of March before the coronavirus sent sales reeling.

Consumers are aware of the discrepancy. According to J.D. Power PIN data, leases accounted for only 22% of sales for the week ending May 17, compared with 30% for the same period a year ago. In markets with traditionally high lease percentages, this has held sales back. In New York leases accounted for 68% of total vehicles sold in 2019, and in Detroit the rate was even higher — 74%. Perhaps in response manufacturers have brought to market some new lease offers that essentially amount to “sign and drive” with no upfront payments.

The incentives, trumpeted with pervasive advertising campaigns on the Internet and in broadcast media, have certainly gotten consumers’ attention. TrueCar, the Santa Monica, Calif.-based, price research site and deal-facilitator, just announced that “vehicle shopping is now higher than pre-COVID-19 levels.”

TrueCar says its marketplace traffic and purchase intent returned to pre-COVID-19-impact rates in the last two weeks of April and both indicators have continued to increase going into Memorial Day weekend.

Like many in the industry, TrueCar CEO Mike Darrow looks at the coming weekend as a very telling moment for the industry and for the economy as a whole.

“Memorial Day weekend is poised to be a key pivot point in the recovery of automotive sales,” he told forbes.com. “Dealerships across much of the country are open again for business and TrueCar is tracking a recovery in consumer demand to pre COVID-19 levels. When combined with continued generous OEM-sponsored discounts, the result is a trifecta of favorable conditions to reinvigorate new car sales.”

J.D. Power’s Jominy had a more numerical answer to the question of auto sales this Memorial Day weekend.

“For the week that includes Memorial Day weekend, we expect sales will be in a range of 225,000-268,000 versus a pre-virus forecast of 313,000,” he said. “This is a range of decline of 14-28% from the pre-virus forecast. That said, the Memorial Day weekend is one of the biggest sales weekends of the year, so dealers will be looking to make a lot of deals.”



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