Rewind & Review: 2020 Auto Sales Totals and 2021 Predictions

Before we officially slam (and bar) the door on 2020, let’s examine last year’s impact on the automotive industry. It’s been a wild ride for sure, but one with several highs to offset the many, many lows. As it turns out, the industry has learned a thing or two since COVID turned the world upside down. No one can predict exactly how the next few months will play out, but we can make some informed assumptions based on current data.

The Big Picture

Year-end totals show 2020 U.S. auto sales hovering around 14.5 million, down roughly 15% compared to last year and the lowest level since the Great Recession. While the results are certainly dismal, industry experts seem to agree: “It coulda been worse!”

Indeed, these numbers are stronger than the 13 million range that analysts forecasted earlier this year when COVID shuttered factories and closed dealers.

“Thinking back to the dire state of the market at the outset of the pandemic, it’s such a testament to the incredible durability of the entire automotive industry — and the resilience of the American consumer — that we’ve seen such a healthy rebound in new car purchases this year,” said Jessica Caldwell, Edmunds’ Executive Director of Insights. “A big comeback story of 2020 is without a doubt the recovery of retail vehicle sales, which have nearly returned to pre-pandemic levels.” – Edmunds December press release

Recovery began this summer and continued through December, which finished strong. Cox Automotive reports a 1.9% rise in sales volume in December over the same month in 2019 – translating to about 1.54 million units. (Although, it’s worth mentioning that December 2020 boasted three more shopping days than the previous year, and five more than November 2020.)

2020 Takeaways

Overall, this year’s dramatic drop in sales was more about low inventory than lack of demand, say analysts. As dealers reopened, many consumers shopped eagerly. Moreover, they showed a willingness (and ability) to pay premium prices, supporting the theory of a K-shaped economic recovery that favors wealthier Americans.

Indeed, average transaction prices hit a new record high, surpassing $40,000.

Only 24% of nameplates were priced below $32,000 in 2020, compared to 54% in 2012 and 28% last year, reports Charlie Chesbrough, senior economist at Cox Automotive. This data implies the typical customer of a new car is becoming more affluent, he says, while those in lower income brackets are either holding onto their vehicles longer or turning to the used market. Pointing to the current glut of low-priced compact and subcompact vehicles sitting on dealer lots, Chesbrough says, with the right incentives, this segment could be a growth opportunity in 2021.

Did you know…?

IHS Markit places the average age of vehicles on American roads at 11.9 years – one month older than in 2019. That spells good news for the aftermarket, as older vehicles lead to an increase in maintenance and repair services.

The used vehicle market experienced a banner year in 2020, as OE supply issues, shrinking consumer budgets, and a newfound distaste for public transit during a pandemic all helped shoppers see pre-owned metal in a new light.

While data shows that the used vehicle market is cooling down after its big boom this summer, we expect the water to stay warm. Trade-in values may be returning to normal levels, but a steady supply of near-new, off-lease, and off-rental vehicles are keeping the average transaction price for used vehicles relatively flat. As new strands of the virus complicate vaccine roll-outs, disrupt society, and facilitate fresh lockdowns, we expect the used car market to continue filling gaps in supply.

This month, automakers faced additional production delays thanks to a global microchip shortage – a unique byproduct of COVID-induced consumer electronics sales. Read more here.

Similar to last year, one small victory for consumers is another drop in interest rates.

According to Bankrate data, the average 60-month/five-year new car loan rate started off 2020 at 4.60% and closed out the year at 4.22%. The average 48-month/four-year used car loan rate dropped from 5.33% to 4.88%. For 2021, Bankrate chief financial analyst Greg McBride, predicts new vehicle five-year rates will sink to 4.08% and four-year used car rates to 4.75%.

This decline is good news for prospective buyers and lessees, as well as automakers and dealers eager to push new product.

Power of Choice

While automakers’ timelines for new vehicle debuts and deliveries required some clever rearranging this past year, automakers still managed to bring us such goodies as the new Ford Bronco, RAM TRX, V8 Wrangler, Hummer EV, Mustang Mach-E, and C8 Corvette – just to name a few.

According to John Murphy, lead automotive analyst at Bank of America Merrill Lynch and author of Car Wars, an annual study of U.S. product pipeline, automakers are poised to deliver an astounding 250 new model vehicles by 2024. That translates to roughly 63 new vehicles a year, up significantly from a 40-per-year average over the last two years. As expected, the light truck segment will lead the charge. Nearly half will be crossovers, with SUVs and pickups occupying about 28%. Murphy estimates 113 new CUVs will hit the market by 2024.

Those looking to step outside the box with an electric powertrain will find significantly more power-of-choice in 2021, as nearly every major automaker has a buzzy EV on the docket. Consumers will need to dig a little deeper in their pockets, though. Entry prices remain high, and OEs are unlikely to stray from their current path of launching profitable higher-end models in an effort to fund more mainstream EVs.

Predictions for the 2021 Market

Considering the past year’s madness, it feels unwise to make predictions for 2021. However, we do feel confident on a few fronts.

More Mergers

Data indicates that light trucks will account for nearly 69% of all new-vehicle sales by 2025, making for a seriously crowded market. As competition heats up, so will consolidation. And while strategic partnerships are nothing new, this kind of industrial restructuring is different. Expensive technology has entered the fold, bringing along its Silicon Valley overlords – and they desperately want a piece of that ever-lucrative automotive pie.

As Automotive News points out:

“Google and Apple have long been dominant players in the automotive market, particularly through infotainment services such as Google voice assistant, Apple CarPlay, or Android Auto. Microsoft has found its niche in providing connected vehicle and cloud services for automakers.”

Add Amazon to the top of that list, as its ever-present, always-listening Alexa wiggles her way into an increasing number of vehicles. (See the video below as Evidence: Exhibit A.)

In addition to partnering with tech giants, automakers are partnering with each other, too. (Presumably to protect what’s theirs from Big Tech.) Ford and VW signed agreements in 2020 for joint projects on commercial vehicles and autonomous technology. More recently, GM announced it will build electric crossovers for Honda and Acura, using its new Ultium battery-electric vehicle tech.

Perhaps the most notable upcoming merger however is that of FCA and PSA. The two automakers tied the knot in 2019, but finally got approval from shareholders and the EU this past quarter. Together, they will form the world’s fourth-largest automaker, to be named “Stellantis.”

The aftermarket is not exempt from this trend either. Recently, Pertronix and Aeromotive – two brands at the top of their game – joined forces to ensure it stays that way. Read more here.

AV Anesthetization

Whether you feel it’s a friendlier attitude, alarming desensitization, or full-blown Stockholm Syndrome, consumers are warming up to the idea of autonomous technology. Advanced driver-assistance systems (ADAS) continue to evolve, and – as we predicted last year – pop up on lesser vehicle trims, along with cushier comfort and convenience amenities.

While many industry professionals expected ADAS to be the buzzy business model of 2020, AV developments ended up capturing many-a-headline in Q4.

In October, Waymo expanded its service without backup drivers. In early December, UBER sold its self-driving unit to its start-up competitor, Aurora. Then, later that month, Nuro became the first AV company to receive a commercial license, paving a way to profitability in the autonomous sector. Most recently, NHTSA began regulatory proceedings to establish new safety standards for autonomous vehicles.

As Shift podcast points out: While much of the mobility fuss over the last few years has centered on moving people, COVID forced everyone to reconsider the importance of moving goods. Look for more companies to leverage their AV expertise in the delivery arena.

Politics Will Stay Front and Center

Last, but certainly not least, we must address the elephant in the room. That is, the incoming administration and its ambitious policy plans that stand to make some pretty big changes to the auto industry. We know this is a contentious topic, so let’s stick to some basic, fact-fueled speculation.

Democrat Majority

The outcome of the Georgia Senate runoff elections earlier this month gave Democrats control of the upper chamber of Congress by a narrow margin for at least the next two years. With a 50/50 split, Vice President Kamala Harris casts tie-breaking votes.

Naturally, we expect this breakdown to help President Joe Biden’s proposed legislation, as much of it – like clean energy and new infrastructure – will require congressional approval to release necessary government funding. Expect some fast-tracking on legislation affecting the auto industry, from emissions policies to consumer finance.

“Greener” Cabinet Picks

A Democrat-led Senate should also facilitate faster approval of Biden’s cabinet picks. One such notable nomination is Former Mayor of South Bend, Indiana and Democratic Presidential Candidate Pete Buttigieg for Transportation Secretary. A traditionally “sleepy” post, Transportation Secretary may prove to be an interesting appointment for Buttigieg.

When Buttigieg ran for President, he pushed a $6 billion climate plan heavy on EVs. With Biden’s administration placing a strong emphasis on a green agenda, placing a recognizable candidate in the transportation position is strategic. Biden’s administration likely will bolster this agenda with another cabinet pick: Former Michigan governor, Jennifer Granholm – an EV advocate – as Energy Secretary.

Trade Changes

While Biden has acknowledged China as a global trade violator, he’s critical of President Trump’s tariffs — calling them ineffective. Instead, Biden has pledged to encourage U.S. investment by incentivizing “made in the USA” and reshoring through a 10% tax credit for companies that create U.S. jobs.

U.S.-China trade tensions will not disappear when Biden takes office, as the new President says he won’t immediately remove the elevated tariffs of the Trump administration. Biden said he plans to develop a “multilateral” strategy incorporating allies in Europe and Asia to build leverage against China. He also plans to enforce existing trade rules and express support for the WTO. We expect the tariffs to linger — for a little while at least. Mostly because we’re willing to bet the government has already translated that money into a steady little revenue stream.

Curious how these trends will play out in the aftermarket? Come back on Friday to check out our year-end coverage!