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Jul
2021
2

Automakers report 2Q vehicle sales today. Here’s what investors should expect

A Totota dealership is seen in Annapolis, Maryland on May 27, 2021, as many car dealerships across the country are running low on new vehicles as a computer chip shortage has caused production at many vehicle manufactures to nearly stop.

Jim Watson | AFP | Getty Images

DETROIT – Sales of new vehicles in the U.S. remain healthy but are showing signs of a slowdown amid concerns about inflation and a global shortage of semiconductor chips that continues to depress auto production and dealer inventory levels.

Analysts estimate automakers sold about 4.5 million vehicles in the U.S. in the second quarter — a 52% to 53% increase compared with a year ago when the coronavirus pandemic caused Americans to shelter in place and temporarily closed auto dealerships. Most major automakers report June and second-quarter sales data on Thursday, except for Ford, which is expected to release its results Friday.

While the sales recovery from the depths of the pandemic is impressive, the pace of sales this year is slowing. Deutsche Bank analyst Emmanuel Rosner expects June’s sales pace to be 15.7 million vehicles, down from 17.1 million vehicles in May and 18.6 million vehicles in April.

The sales pace for any given month measures how many cars the industry would sell for the year if it sold the same amount every month. It’s a main barometer of the industry’s health and consumer demand.

“The sales slow-down likely reflects a lack of availability on dealer lots rather than a decline in consumer demand as automakers struggle to replenish dealer inventories with top models, particularly SUVs and pickup trucks,” Rosner wrote in an investor note.

Sales for every major automaker are expected to be up double digits during the second quarter compared with the same time a year ago, according auto research firms Cox Automotive and Edmunds. But they’re only slightly above the second quarter of 2019.

Something not showing signs of slowing down is sales prices of new vehicles due to tight supplies from the global chip shortage and stronger-than-expected consumer demand throughout the Covid pandemic.

The average transaction price for a new vehicle in June is expected to reach a record $40,206, according to J.D. Power and LMC Automotive. The previous high for any month, $38,539, was set in May, according to the companies.

The higher pricing has led to higher profits for automakers and retailers but has stoked broader concerns about inflation. Consumer spending on new vehicles is expected to reach a second-quarter record of $149.7 billion, up 60.7% from 2020 and up 27.9% from 2019.

“Despite inventory shortages constraining the volume of vehicles sold to consumers, the underlying strength of consumer demand is clear. Consumers are buying more expensive vehicles despite smaller discounts, which is dramatically increasing the profitability of those sales for both manufacturers and retailers,” said Thomas King, president of the data and analytics division at J.D. Power, in a statement.

CNBC’s Michael Bloom contributed to this report.

Apr
2020
20

Automakers are offering extreme deals. Car buyers should proceed with caution

A number of car companies, including Fiat Chrysler (FCAU), General Motors (GM) and Hyundai (HYMTF), are offering 84-month car loans at 0% interest. That’s seven years without any interest. Others are offering 72-month loans at zero interest. Not only that, but buyers can put off making their first payment for 120 days, or about four months. That should be helpful for workers on furlough. (Hyundai, for one, is also offering other payment protection plans for owners who lose their jobs due to coronavirus-related disruptions.)

With loans that long and no interest at all, monthly car payments can be very low. That’s assuming, of course, your credit score is good enough to qualify. But, experts warn, don’t get so fixated on that very enticing interest rate that you forget to consider all your options. It may not be the best deal for you.

There are some risks with taking these very long car loans. The main one: That you’ll still be making payments long after the new car smell has gotten lost behind a forest of cardboard pine tree air fresheners.

You might not like the car so much by then, even if you loved it when you bought it. Also, your needs might change, said Michelle Krebs, an industry analyst with Autotrader.com. A lot can happen in seven years.

“If you’re going to buy a small car how would you know what your life is going to be like in that amount of time,” she said.

You might need a bigger car, maybe even an SUV or minivan, before then. Also, new cars with fancy new technologies could start to look appealing a few years down the line. Maybe you want to go electric some time before 2027.

Then there’s a fundamental math problem. The longer you stretch out your loan, the longer you’ll be “underwater” on your new car. That means you will owe more money on the car than the car is worth. All new vehicles lose value the minute you purchase them. The drop in value is steepest at the beginning — right after it changes from a new vehicle into a used vehicle — then tapers off to a gradual decline over the years.

Chevrolet dealers are offering 84-month 0% interest loans on many 2019 models including the Colorado pickup.

The amount you owe on the vehicle, on other hand, declines at the same rate each month as you make each payment. With a longer loan and smaller payments, that slope will be shallower. That increases the amount of time during which you’ll owe more money than your car is worth.

“It puts the transaction in a bit of a negative light in terms of ‘Oh man, I’ve got this car and it’s not even worth as much as my loan’,” said Jessica Caldwell, an analyst with Edmunds.com. “It’s just not a good feeling.”

If you’re happy with your car or crossover and plan to keep driving it, that’s not really a problem. It’s only a problem if your needs change or you just