Auto sales plummeted by one-third in the second quarter of last year, according to S&P Global Market Intelligence, and at the time it felt the like tip of disaster for the car business. The global pandemic stifled demand as the supply side was strangled by shuttered factories and parts and components that couldn’t be shipped to automakers.
General Motors had to shut its Chevrolet Corvette assembly plant for several weeks, but this turned out to be more a supply problem for the automaker than a demand problem, as consumers on the $60,000-plus end of the sports car market generally weren’t the people losing jobs and income.
This gets to a drum I’ve been beating for years. The idea of building brand-new cars and light trucks for working class and middle-class Americans, the very model incubated by the Curved-Dash Oldsmobile and brought to life by the automated assembly lines of Henry Ford’s Model T, the car that put America on wheels, is over.
Latest proof is the comeback of new vehicle sales from those dark days at the end of the first quarter in 2020 and through the second quarter, into much healthier third and fourth quarters. Calendar year 2020 vehicle sales in the U.S. dropped 14.4% from 2019, to 14,645,049 cars and light trucks says Automotive News, but that’s far better than anyone expected from that second quarter drop.
Even with a pandemic that most economists say created our most severe economic crisis since the Great Depression 90 years ago, the 14.6-million sales number is far more palatable to the industry than the 2008-2009 Great Recession, when sales dipped below 11 million at its nadir. With the current pandemic, the auto industry mirrors the economy in general, in which college-educated professionals, management and executive-level employees and their employers spend their workdays in home offices, seeing their colleagues and clients on Zoom rather than in person.
Presently, of Americans who can work at home, unemployment is 3.9%, but for those who have to report to a work site, the rate is 8.9%, KMPG chief economist Constance Hunter told The Washington Post. (Jan. 28, 2021).
About the same time that auto sales fell by one-third, the April 2020 U.S. unemployment rate reached 14.8%. By December 2020, auto sales climbed to near-pre-pandemic levels, but the U.S. unemployment rate was still high at 6.7%, compared with just 3.5% for January and February 2020, according to tradingeconomics.com. The rate for Black and Hispanic Americans is significantly higher, and the Congressional Research Service singles out heavy job loss in the leisure, hospitality industry and restaurants. Your favorite waiter or waitress at the local Olive Garden isn’t shopping for a new Kia, let alone a new Cadillac these days.
Meanwhile, tech barons and big-time investors in tech stocks like Amazon, Facebook and Apple are buying new cars, if the strength of the luxury market is any guide.
In its sales report issued the first week in January, General Motors boasts the all-new 2021 Cadillac Escalade that launched in the middle of the ’20 calendar year—when shutdowns and job losses were growing–“retook market leadership” in the fourth quarter, meaning it began to outsell the Lincoln Navigator again. And here’s the kicker: GM noted that 43% of the new Escalades have “a transaction price of more than $100,000.”
Clearly it was more supply problem and less demand accounting for the 14.4% dip for the year which included phase-out sales of the last of the old model as well as the new, ’21 ‘Slade. Before the pandemic, the average new car transaction price hovered around $38,000, already up significantly from the low-$30s earlier in the ‘10s. The current average is now $40,573, according to Edmunds. Meanwhile, the U.S. Census Bureau estimates the median household income was $68703 (latest figures). Yikes.
BMW was one of the few leading luxury marques that suffered a sales drop worse than the industry average in 2020, of 17.5%. Archrival Mercedes-Benz also had a sales decline, 8.9%, but that was better than the overall industry 14.4% decrease. Tesla was up 20.3%. Jaguar sales dropped 29.8% to 18,586 vehicles; its sister brand, Land Rover was down just—comparatively speaking–15.5%, to 80,034.
The boom in the SUV and truck market plays a big role in making luxury items of brand-new vehicles, even among the commodity brands. Small sedans and hatchbacks that many brands have cut from their lineups in the last few years were entry-level models. Small sport/utilities and crossovers generally are priced a size category up from their sedan counterparts. One surviving commodity compact sedan, the 2021 Honda Civic LX, starts at $22,425 (including destination charge), while the CR-V LX, a compact SUV sharing many of the Civic’s bits, starts at $26,525, and that’s with front-wheel-drive. Good luck finding a FWD compact SUV of virtually any brand on a dealer’s lot in the north. If you want an AWD CR-V, you must move up to the EX trim level, and that starts at $29,035 before adding floor mats, $6,610 more than the Civic LX sedan.
Toyota’s CR-V rival is the RAV4, America’s bestselling vehicle after full-size Ford, Chevy and Ram pickup trucks. Last year’s RAV4 sales were down just 3.9% to 430,387. Toyota’s luxury division undoubtedly more than made up for that dip with much higher profit margins on the 2,574-unit increase in Lexus GXes sold last year, up 9.9% to 28,519, a sport-utility that starts at $54,275. The Lexus GX was the only model among Toyota’s two North American-market brands to post a sales increase last year. The full Lexus lineup is off just 7.7%, compared with the Toyota brand’s 11.9% drop.
So what’s the average Joe to do? There’s always the used market, but even that is become a bit rich. According to Edmunds, in Q4 2020 the average monthly payment for a used car was $ 437, and that for a 68.1-month loan.—Todd Lassa