May is expected to see the continuation of falling monthly auto sales in the U.S. that the industry has seen for the first four months of the year with a decline of 2.1%, according a new estimate.
Higher prices for new vehicles are largely to blame, according to analysts at J.D. Power and LMC Automotive, who also predicted a 3.1% slide in retail sales for May down to 1.23 million units and 1.56 million, including fleet and other sales, units overall.
The expected bump in sales over Memorial Day weekend isn’t likely to offset earlier declines in the month as vehicle prices combined with higher interest rates are still combining to shut some potential buyers out. Dealers often put out for special sales on the long holiday weekend. This year was no exception and manufacturers were backing those efforts with some big discounts, and a return of several 0% financing deals.
“Manufacturers are responding with larger discounts to take advantage of the Memorial Day weekend which is one of the busiest car-buying periods of the year,” Thomas King, senior vice president of the data and analytics division at J.D. Power, said.
(Memorial Day weekend means more traffic — and good deals. Click Here for the story.)
Automakers are averaging $3,722 in incentive spending per unit to date in May — a jump up from $3,697 last year. However, the discounts aren’t as big a problem as some might believe as automakers are still making more profit on a per vehicle basis.
New vehicle prices are on pace to reach $33,457 in May — a month high and up more than 4% from last year, primarily due to weakness at lower price points, according to the report.
Transaction price growth also means that the total value of new vehicles purchased in May will increase despite the sales decline. Consumers are expected to spend $41 billion on new vehicles this month, up $381 million from last year’s level.
(Click Here for details about how April sales fell.)
“Looking forward, elevated inventory levels remain an issue that will only be corrected through production cuts or higher incentives,” King said. LMC Automotive, however, maintained its forecast for total light-vehicle sales of 16.9 million units in 2019, a 2.5% fall from 2018.
Dealers do have a bright spot to enjoy — used car sales. Sales of used vehicles by franchised dealers are up 5.9% month-to-date over last year. For many dealers, robust profits from used-vehicle operations are more than offsetting the challenges in new-vehicle operations so May won’t be quite so dire.
“May reflects a mixed performance for the industry,” King said. “For manufacturers, despite lower volumes, higher prices are delivering an increase in net revenue.
(Automakers still looking for top price on full-size pickups. Click Here for the story.)
“For dealers, strength in the used market is offsetting weakness in new. Looking forward, elevated inventory levels remain an issue that will only be corrected through production cuts or higher incentives. As the industry starts its transition to sales of 2020 model-year vehicles, pressure to increase discounts on 2019 model-year vehicles will rise considerably.”