Carmakers are facing another double-digit drop in sales when all the numbers for June are recorded, as low inventories stall deliveries despite strong demand.
New-vehicle sales for June 2022, including retail and non-retail transactions, are projected to drop 15.8% from June 2021. Comparing the sales volume without adjusting for the number of selling days translates to a decrease of 12.4% from 2021, according to a forecast by J.D. Power and LMC Automotive.
The seasonally adjusted annualized rate, or SAAR, for total new-vehicle sales is expected to be 13.1 million units, down 2.3 million units from 2021, the forecast predicted.
Thomas King, president of the data and analytics division at J.D. Power, said manufacturers are continuing to benefit from sales quality over sales quantity.
On a volume basis, year-to-date retail sales by the end of June will be just under 5.9 million units, a large decline of 19.1 percent. Excluding pandemic-affected 2020, this is the worst first six months’ sales volume performance since 2011, King noted.
Profits increase for dealers and manufacturers
However, from a profitability standpoint, the first half of 2022 has set records for both retailers and manufacturers as vehicle prices continue to rise, manufacturer discounts get ever smaller and retailer margins set new highs.
“The average transaction price for the first six months of 2022 is expected to reach a record of $44,907 — a 17.5% increase from 2021. This is partially due to incentive spending per unit, expressed as a percentage of average vehicle MSRP, trending towards 2.4% for the first six months, down from 7.1% for the same time period in 2021,” King said.
“The inventory shortages that have depressed volumes, however driven up prices and profits, are showing no signs of improvement. June 2022 is on track to be the eighth consecutive month that retail inventory closes below 900,000 units,” he added.
For June, new-vehicle prices continue to set records, with the average transaction price expected to reach $45,844 — a 14.5% increase from a year ago and the highest level on record. Consequently, even though the sales pace is down 18.2% year over year, consumers will spend $44.3 billion on new vehicles this month, the second-highest level ever for the month of June but slightly down 2.7% from June 2021 due to reduced volume.
Profit per unit for the first half of 2022 is trending to reach $4,774, up $2,206 from the same period in 2021, while total profits are expected to reach $27.8 billion, up $9.4 billion from 2021.
Incentives disappear
Discounts from manufacturers continue to erode. The average incentive spend per vehicle is tracking toward $930, a decrease of 59.4% from a year ago and the second consecutive month under $1,000.
Incentive spending per vehicle expressed as a percentage of the average vehicle MSRP is trending toward a record low of 2 percent, down 3.4 percentage points from June 2021 and the fifth consecutive month below 3 percent.
King noted one of the factors contributing to the reduction in incentive sending is the absence of discounts on vehicles that are leased. This month, leasing will account for just 18% of retail sales. In June 2019, leases accounted for 30% of all new-vehicle retail sales, he said.
Elevated used-vehicle values continue to help affordability for new-vehicle buyers who have a vehicle to trade in. The average trade-in equity for June is trending towards a record high of $10,381, a 49.2% increase from a year ago and the first time above $10,000.
Despite record level trade-in values, the average monthly finance payment in June is on pace to hit a record high of $698, up $79 from June 2021. That translates to a 12.8% increase in monthly payments from a year ago, which is just below the 14.5% increase in transaction prices.
King’s analysis also noted vehicles continue to sell quickly and a sizable number of vehicles are being ordered — or purchased — by buyers before they arrive at the dealership.
“This month, 56% of vehicles will be sold within 10 days of arriving at a dealership, while the average number of days a new vehicle is in a dealer’s possession before being sold is on pace to be 19 days — down from 37 days a year ago,” he said.
“While higher interest rates and economic concerns represent directional headwinds for the industry, consumer demand remains considerably higher than available supply. With each additional month of inventory constraints, pent-up demand for new vehicles is building ever larger — and that demand will insulate the industry from the effects of these economic headwinds.”
