Auto Sales Recover In May: ETF & Stocks To Ride On

After a dismal April, the U.S. auto industry showed signs of recovery in May. As COVID-19 lockdown measures eased, dealers started opening their stores. Incentives and online sales also drove interest for new vehicles.

In particular, sport-utility vehicles and trucks dominated U.S. auto sales last month. The pace of sales picked up in May, averaging 12.17 million vehicles on an annualized basis from 8.6 million in April, according to Autodata. Though the number came in better than expected, auto research firms expected new vehicle sales to be slightly less than 1.1 million in May, down about 32-33% from the year-ago level. Toyota (TM - Free Report), Honda (HMC - Free Report), and Hyundai reported double-digit sales losses of 25.7%, 16.9% and 12.9%, respectively, last month.

Per Cox Automotive, incentives in May were also lower than the last two years particularly due to inventory being depleted with factories idled.

Automakers on Recovery Path?

The University of Michigan's Surveys of Consumers showed that 64% of those polled in May said it was a good time to buy a car. That was up from 57% in April and the highest level since December. Those saying times were bad or the future was uncertain fell to 28% from 38% the prior month.

Automakers are likely to speed up their production to cope with a rebound in demand after coronavirus shutdowns. General Motors (GM - Free Report) will keep building vehicles at most of its U.S. plants to meet strengthening customer demand, instead of taking a traditional two-week summer shutdown starting Jun 29. Additionally, half of Ford Motor Co's (F - Free Report) eight U.S. assembly plants have reduced their shutdowns to one week. Others are shifting their breaks to later in the year. All these suggest that the auto industry is on its way to recovery.

Meanwhile, the industry fundamentals look bright. Lower interest rates coupled with massive incentives are expected to propel auto sales. This is especially true as the Federal Reserve lowered interest rates to near-zero to support the economy that will encourage lending and boost consumer spending. As such, this will push more consumers to avail loans while buying vehicles.

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