The US auto industry is bouncing back sooner than expected as American consumers show a strong appetite for luxury cars despite the COVID-19 pandemic.
Companies such as BMW, Daimler, Fiat Chrysler, Ford, and General Motors reported higher-than-expected earnings in the third quarter of 2020, surpassing their pre-pandemic performances across various key metrics. Honda and Toyota, meanwhile, increased their profit forecasts significantly in the same period.
Many automakers had been hemorrhaging billions of dollars in the spring of 2020 due to the temporary closure of factories worldwide. When production picked up again a few months later, so did sales.
Though millions of Americans were left unemployed due to the pandemic, most of those who were affected were lower-income workers in the service industry. Many higher-earning workers, on the other hand, were spared the axe. Stay-at-home orders also meant less spending on things like travel and dining out, allowing them to save more money.
The higher spending power of these financially-comfortable consumers has led to a boom in car sales. Data gathered from the past several months also showed car buyers are now showing a preference for expensive pickup trucks and higher-end SUVs. Even with a smaller number of total sales, consumer preference for higher-priced models has made it possible for automakers to earn a decent profit.
Used car prices also increased in 2020, averaging $22,470 on the Massachusetts-based car listings website CarGurus as of late October. This figure is around $1,800 higher than at the start of the year.
China, the world’s largest car market, has also seen a significant improvement in demand following months of poor sales.
As a result, Ford was able to pay back the $15 billion it borrowed to survive the pandemic, with around $30 billion to spare. Fiat Chrysler saw its quarterly earnings in North America soar to record highs, while General Motors doubled its expectations for earnings per share in the third quarter.
The auto industry’s strong performance in the third quarter helped make up for losses car companies incurred earlier this year, though Stephanie Brinley of IHS Markit warned that car sales would still be lower in 2020 as a whole. Brinley also cautioned that the industry may experience some difficulties in 2021 given the uncertainty of the pandemic.
Despite this, many car companies remain excited about the future and are investing heavily in various research and development initiatives.
In November of 2020, General Motors CEO Mary Barra said the amount of cash the company was earning from sales of trucks and full-size SUVs in North America would allow it to self-fund its electric vehicle program instead of borrowing money or seeking investors.
Nissan, meanwhile, is considering a “complete, end-to-end digital journey” for car sales to adapt to a new era where customers may be more hesitant to visit car showrooms.
Nissan COO Ashwani Gupta said this would allow consumers to research cars, arrange a test drive, and make a purchase without ever stepping foot in a dealership. Other senior executives also believe online sales would allow the company to reduce costs and operational waste in selling cars and improve data gathering processes.
According to the initial reports, Nissan’s digital drive will initially focus on North America and China. These two markets, along with Europe, saw an increase in the number of cars sold through company websites during the pandemic. Sales via Nissan’s e-commerce sites accounted for 11 percent of the company’s overall sales in these markets in the first half of the year, up from just four to five percent in the same period in 2019.