July new-vehicle sales expected to decline; profits at record levels

(August 1, 2022) New-vehicle retail sales for July 2022 are expected to decline when compared with July 2021, according to a joint forecast from J.D. Power and LMC Automotive. Retail sales of new vehicles this month are expected to reach 988,400 units, a 10.8% decrease compared with July 2021 when adjusted for selling days. July 2022 has one less selling day compared with July 2021. Comparing the same sales volume without adjusting for the number of selling days translates to a decrease of 14.1% from 2021.

Total new-vehicle sales for July, including retail and non-retail transactions, are projected to reach 1,159,700 units, a 5.7% decrease from July 2021. Comparing the sales volume without adjusting for the number of selling days translates to a decrease of 9.2% from 2021.

The seasonally adjusted annualized rate (SAAR) for total new-vehicle sales is expected to be 13.7 million units, down 0.9 million units from 2021

“July is yet another month where supply constraints keep vehicle sales artificially low but deliver record transaction prices and dealer profitability. July 2022 is on track to be the ninth consecutive month that retail inventory closes below 900,000 units as anticipated improvements in vehicle production volumes fail to materialize," said  Thomas King, president of the data and analytics division at J.D. Power.

"The industry sales pace is simply a function of the number of vehicles being delivered to dealers each month, with a large portion of those vehicles being sold before they arrive at the dealership. This month, 55% 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 29 days a year ago.

“For July, new-vehicle prices continue to hover near record levels, with the average transaction price expected to reach $45,869—a 12.3% increase from a year ago—the second highest on record.

“Consequently, even though the sales pace is down 10.8% year over year, consumers will still spend nearly $45.3 billion on new vehicles this month, the second-highest level ever for the month of July but slightly down 3.5% from July 2021 due to the reduced sales volume.

King continues, “Unsurprisingly, the lack of inventory is leading to even smaller discounts from manufacturers. The average incentive spend per vehicle is tracking toward $894, a decrease of 54.7% from a year ago. This will mark the third consecutive month under $1,000 and the first time under $900. Incentive spending per vehicle expressed as a percentage of the average vehicle MSRP is trending toward a record low of 1.9%, down 2.7 percentage points from July 2021 and the first time below 2.0%.

"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 17% of retail sales. In July 2019, leases accounted for 29% of all new-vehicle retail sales.”

Higher prices and smaller discounts, coupled with rising interest rates, mean monthly loan payments on new vehicles have reached an all-time high, breaking the $700 level for the first time. The average monthly finance payment in July is on pace to hit a record high of $708, up $81 from July 2021. That translates to a 12.8% increase in monthly payments from a year ago, which is above the 12.3% increase in transaction prices. This is the first month since December of 2019 that the percentage growth of monthly payments has exceeded the percentage growth in transaction prices.

 This is mostly due to rising interest rates. Average interest rates for new vehicle loans continue to accelerate and are expected to increase 104 basis points from a year ago to 5.31% in July.