The U.S. auto industry is witnessing robust recovery as it overcomes the pandemic-related challenges and capitalizes on favorable market trends. May proved to be another promising month for the U.S. automotive industry, marking the 10th consecutive monthly increase in sales, according to LMC Automotive. Deliveries of light vehicles totaled 722,000 for the seven automakers reporting monthly figures, witnessing a notable 22% rise, per Automotive News. Per Motor Intelligence, the seasonally adjusted annualized sales rate (SAAR) for May 2023 was 15.1 million vehicles, up from 12.73 million vehicles in May 2022. The recovery in inventories and the introduction of attractive incentives played a pivotal role in driving the surge.

In this article, we will examine these factors in more detail, highlight the sales figures of different automakers and discuss the outlook for the industry.

Improving Inventory Levels Supporting Pent-Up Demand

One of the key drivers of U.S. auto sales growth in May was the significant improvement in inventory levels compared to a year ago, when the industry faced severe supply chain disruptions due to the COVID-19 pandemic. According to estimates from J.D. Power and LMC Automotive, retail inventory was approximately 1.3 million vehicles at the start of June, reflecting a 48% increase from a year earlier. Shoppers now have a plethora of vehicle options to choose from after limited product availability last year.

Charlie Chesbrough, Cox Automotive's senior economist, said in a statement, "Vehicle shoppers now have a much better chance of finding something that fits their needs. Pent-up demand, held back by limited product availability last year, is now being fulfilled as inventory levels improve around the country."

The Honda brand had a substantial inventory of 34,000 vehicles, showcasing a significant increase from the 12,000 units recorded in the prior year. Similarly, Acura witnessed a notable surge in its stock, with approximately 21,000 vehicles on hand, compared with 4,000 units reported at the beginning of June 2022.

Toyota ended May with a total inventory of 153,742 Toyota and Lexus models. Among these, 27,255 units were available at dealerships, while the remaining vehicles were either in ports or in transit.Ford reported a total inventory of 383,000 vehicles, which encompassed a range of models, including medium and heavy-duty trucks.

Irresistible Discount Offers Fueling Sales

Another factor that boosted U.S. auto sales in May was the increase in incentives offered by some automakers and dealers to stimulate demand and entice potential buyers. According to TrueCar, the average incentive amount reached $1,931 last month, representing a 13% increase from April and a substantial 64% increase from May 2022. Automakers like General Motors (GM Quick QuoteGM - Free Report) , Ford (F Quick QuoteF - Free Report) , Volkswagen (VWAGY Quick QuoteVWAGY - Free Report) , Stellantis (STLA Quick QuoteSTLA - Free Report) and others offered sweeter incentives to buoy sales.

Volkswagen witnessed a remarkable surge in incentives, which skyrocketed fourfold to a staggering $2,048 per vehicle, as reported by Motor Intelligence. Meanwhile, Jeep claimed the throne for the highest incentives, now standing at an impressive $3,428 per vehicle, nearly triple its offering from the same period last year. Other automakers like Ford, Hyundai, Buick, and Honda also experienced a significant leap in their incentive outlays.

Chevrolet strategically captured the attention of qualified buyers working through GM Financial by offering an alluring 1.9% financing deal on carefully selected crossovers and SUVs. Adding to the appeal, buyers were also granted a generous respite from payments for an extended period of 90 days. In a similar vein, select Stellantis dealers went the extra mile, providing customers with an unprecedented opportunity to save a remarkable sum of up to $12,000 on the iconic Jeep Grand Wagoneer.

These incentives not only provided financial benefits but also created a sense of urgency and encouraged buyers to take advantage of the deals while they last.

Rundown of Sales Figures of Auto Biggies

Ford’s U.S. sales volumes rose 10.7% in May. The Ford brand saw an increase of 12%, whereas Lincoln witnessed a decline of 14.4%. Ford brand sales have been on a consistent upward trajectory for the past six months, while Lincoln's volume has faced a decline for three consecutive months. Ford currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Honda witnessed a significant surge in sales, with a total of 119,445 units sold, reflecting a remarkable 58.2% increase compared to the previous year. Both the Honda and Acura brands experienced impressive year-over-year growth, with sales rising 53.2% and 112.2%, respectively. Moreover, Honda's electric vehicles achieved a milestone by setting a new monthly record with more than 32,000 deliveries in May. This marked American Honda's third consecutive monthly increase after a challenging period of decline caused by severe inventory shortages as a result of tight microchip supplies and shipping difficulties.

Per Automotive News, Toyota experienced a 6.4% year-over-year increase in US sales in May, reaching a total of 187,205 vehicles. The namesake brand witnessed a 3.7% rise, while Lexus saw a substantial surge of 25% in sales. Notably, light trucks played a significant role in boosting the Toyota brand, with an impressive 11% gain, which offset the 8.9% decline observed in car sales.

Per Automotive News, sales of Hyundai were up 18.4% year over year. Sales of Kia grew 23.4% year over year for the month. Sales of Subaru increased 28.2%, while that of Mazda jumped 117.2%. 

Will the Industry Face Turbulence in 2H23?

The automotive industry has made impressive strides in its recovery but the road ahead is not without obstacles. As we approach the second half of 2023, rising interest rates and looming economic headwinds cast a shadow of uncertainty over the industry's sales momentum.

Industry experts at Cox Automotive anticipate a slowdown in the sales trajectory, cautioning that challenges lie ahead. However, it's not all doom and gloom. The silver lining comes in the form of continued higher incentives and a surge in fleet volume, which are expected to provide much-needed support to overall sales figures.

S&P Global Mobility paints a cautious picture, suggesting that the current trend in volumes is likely to persist in the coming months. While there might not be any dramatic deviations, concerns about affordability loom on the horizon. These affordability issues could potentially put the brakes on further growth, presenting a critical challenge for the industry.

Economic headwinds are gathering strength, and their impact could introduce some volatility in sales in the second half of the year. Quoting Jeff Schuster, executive vice president and automotive group head at GlobalData, "While we are still concerned that the recovery could lose momentum as pent-up demand is satisfied, there is growing optimism that the U.S. market will continue to outperform expectations through the summer months."