With talk of recession widely circulating as well as rising interest rates and prices driving up monthly payments, sales of new vehicles are expected to hold steady, if not rise a bit in January, sparking optimism about the outlook for the rest of the year and production increases.
Thomas King, president of the data and analytics division at J.D. Power, noted in a new forecast, supply chain disruptions continue but are becoming less severe.
“This is leading to an increase in the number of vehicles being delivered to dealerships and fleet customers,” he said, noting inventory remains above 1 million units for the fourth consecutive month.
“This year is off to an encouraging start from an inventory and sales standpoint. Retailer profitability is softening as expected but remains well above historical norms. Looking forward to February, the industry sales pace will continue to be inventory constrained despite improving production levels.”
Total sales increase in January
Total sales for January are expected to increase 5.4%, while retail sales slide 1.7 percent. The seasonally adjusted annual rate of sales, or SAAR, reached 15.9 million units, according to J.D. Power and LMC Automotive.
However, the overall volume of new vehicles delivered to dealerships in January is still not sufficient to meet consumer demand, resulting in record transaction prices for the month, King said.
New-vehicle transaction prices continue to rise — although the rate of growth continues to slow. The average price will set a January record of $46,437, an increase of 4.2% from a year ago,” King said.
King said several manufacturers are directing a larger portion of their increased production to fleet customers.
Fleet sales have been more heavily inventory constrained than retail sales during the past several years, resulting in significant pent-up demand, according to King. Rising production levels now allow manufacturers to offer more support for their fleet customers while maintaining retail inventory levels.
Fleet sales are expected to total 183,300 units in January, up 59.4% from January 2022 on a selling day adjusted basis. Fleet volume is expected to account for 18% of total light-vehicle sales, up from 12% a year ago.
Truck/SUVs are on pace to account for 78.7% of new-vehicle retail sales in January.
EVs stir interest
Meanwhile, Elizabeth Krear, vice president, electric vehicle practice at J.D. Power, said,
“In December 2022, 24.8% of new-vehicle shoppers said they were ‘very likely’ to consider purchasing an EV, which is 4 percentage points lower than November 2022. The softening correlates to gas prices dropping to the lowest levels in nearly a year.
“Chevrolet once again emerged as the most-considered EV brand in December, breaking away from Tesla by 5 percentage points when Tesla saw all five models decrease in consideration,” Krear added. The Lexus RZ was the most-considered premium model.
The affordability of EVs improved slightly during the past two months, after a four-month decline. This improvement is driven by the premium volume mix, which is closer to parity with ICE vehicles than mass market models, Krear said.