Sales of new vehicles were off again during April with analysts estimating sales will drop 21.4% as the SAAR, the seasonally adjusted annual rate of sales dipping to 14.5 million units.
The lack inventory continued to hamper sales and incentives from automakers are continuing to decline to a new low, according to J.D. Power.
“The April sales pace may look disappointing compared with April 2021,” said Thomas King, president of J.D. Power’s data and analytics. “But last April’s records sales pace was enabled by the combination of extremely strong consumer demand and enough inventory — nearly 1.7 million units — to turn that demand into actual sales,” King noted.
King said demand this April remains very strong but with fewer than 900,000 units in inventory at dealerships, sales volumes will necessarily be well below year ago levels.
New vehicle prices continue to set records, with the average transactions expected to be an April record of $45,232, which is an 18.7% increase from a year ago and the second-highest level on record behind the $45,275 in December.
“Given the strong demand and lack of inventory it is unsurprising that discounts from manufacturers continue to be minimal,” King said. For April, the average incentive spend per vehicle is on track to reach an all-time low of $1,034, a decrease of 65.5% from a year ago.
Incentive spending hits new low
Incentive spending per vehicle as a percentage of the average vehicle MSRP is dropping to an 2.3% down 4.8 percentage points from April 2021 and the third consecutive months below 3 percent.
Manufacturers also are leasing fewer vehicles. Leases accounted for 30% of all retail sales in 2019 but in leasing accounted for 18% of retail sales during April, King said.
King added even at record prices vehicles continue to sell quickly and a significant number of vehicles are being ordered or purchased by buyers before they arrive at the dealership. Roughly 36 of the vehicles arriving at dealerships this month will be sold within 10 days of arriving at a dealership, he said.
“Rising interest rates do pose a threat to sustaining the current records transaction prices,” King said. “As expected, average interest rates for new vehicle loans have increased but at a tempered level,” he said.
The average trade in value is trending toward a record high, offsetting the higher prices and rising financing costs.
The combination of further interest rate of increases and the expectation of some softening in the price of used vehicles in the latter part of the year will present a growing challenge to sustaining the current pricing environment, King added.