Asian automakers make big share gains as SAAR drops

The auto industry's ongoing experiment in forced inventory reduction may be great for quarterly earnings, but it is starting to take sizable bites out of sales and altering the market share landscape.

Sales in July rose an estimated 5 percent over last year as record-low inventories caused by the severe microchip shortage and other supply chain disruptions, especially among the Detroit 3, dropped the annualized pace of sales to 14.8 million — well off the 17 million-plus pace from the first half of the year, according to Morgan Stanley analyst Adam Jonas. It was the lowest SAAR since July 2020, when the industry was regaining steam from earlier COVID-19 related shutdowns.

Among the seven automakers reporting July sales, the differences reflected which ones were able to keep their deliveries to dealers coming. Mazda jumped 36 percent; Toyota Motor North America's sales climbed 33 percent; Hyundai-Kia rose 29 percent; Volvo was up 19 percent; and American Honda's sales rose 8 percent over the previous year. Meanwhile, Subaru's sales slipped 2.6 percent, and Ford Motor Co.'s plummeted 32 percent in July. Other automakers report their results quarterly.

Although Toyota and Hyundai-Kia continue to have the industry's leanest inventories, they have been able to maintain steady flows to their retailers, picking up significant chunks of market share as a result.
Toyota's sales in the U.S. trailed Ford's in July 2020 by just over 5,000 vehicles, 169,484 to Ford's 174,978. Last month was a far different tale for the two full-line automakers, with Toyota nearly doubling up Ford's sales, 225,022 to 118,917.

In a report last week, Jonas estimated that market share for the Detroit 3 in July collectively dropped 7.2 percentage points from the same period last year to 37.4 percent. He said Ford suffered the worst year-over-year decline, losing 5 points of share as ongoing production woes hamstrung inventories, while General Motors and Stellantis each lost more than a point because of the same issues.

Meanwhile, Asian automakers accounted for 52.5 percent of the U.S. market, Jonas wrote. Toyota, with an industry-leading 17.5 percent share, picked up almost 4 points and opened up a lead on GM, whose share was 15.3 percent. Hyundai-Kia edged Stellantis to claim the No. 3 spot, at 11.1 percent, while American Honda topped Ford to grab fifth place. European automakers also collectively picked up share in July, Jonas estimated, though the gain was not as large, adding 0.6 percentage point to hit 10.2 percent.

Inventories remained at historic lows in July and lost further ground as production failed to keep up with overwhelming consumer demand. But that scarcity may be drawing consumers into a segment they were previously hesitant or unwilling to try: electric vehicles. Jonas estimated that EVs' penetration last month nearly doubled to 3.1 percent of the market, up from 1.6 percent a year earlier, while their sales were collectively up 99 percent. Those estimates include Tesla, which does not report monthly sales.

"As has been the case since March, depleted inventory remains the major roadblock to stronger demand, while the rising cases from the delta variant [of COVID-19] does pose some additional short-term risk in the coming weeks," said Jeff Schuster, president of Americas operations and global vehicle forecasts at LMC Automotive. Schuster said the slowing of sales is likely to mean demand will be pushed into 2022, "but there is also risk that some consumers may forgo a new vehicle purchase unless they absolutely need to, since transaction prices remain high and incentives are very low."

Falling incentives and lower inventories are driving new-vehicle transaction prices higher, padding dealer profits. The average transaction price last month was expected reach an all-time high of $41,044, or 17 percent higher than July 2020, J.D. Power said. Meanwhile, average incentives plummeted to just $2,065, down from $4,235 in July 2020 and $4,069 in July 2019, J.D. Power and LMC Automotive said.

"We do have, as an industry, historically low vehicle inventory, fuel prices are rising, and the semiconductor issue is still out there. You know, we feel pretty good about our positioning, but it changes literally hour by hour," Bob Carter, head of sales for Toyota Motor North America, told reporters late last month. "But in addition to those headwinds, we have some historically strong tailwinds in the industry, and you're seeing that through high transaction prices, interest rates are still extremely low, the stock market performance is very strong."

The consumer, Carter concluded, "is feeling very, very good."