U.S. new-vehicle sales saw only a modest rise in the second quarter, despite increased discounts and slightly reduced prices. This sluggish growth can be attributed to persistently high vehicle costs, which continue to deter many potential buyers. However, there are indications that the auto market might experience an uptick in the near future. Industry analysts are optimistic, expecting further price reductions and potential interest-rate cuts, which would make financing a new vehicle more affordable.
Minimal Growth Amid High Prices
According to preliminary data from Motorintelligence.com, U.S. new-vehicle sales increased by a mere 0.1% compared to the same period last year. High prices remain a significant barrier for many consumers. Late June also saw a disruption in sales due to cyberattacks on CDK Global, a company providing software for dealership sales paperwork. While most dealerships were operational again by Tuesday afternoon, some deliveries, including those from General Motors, were delayed into the third quarter due to these issues.
Inventory and Discounts
Analysts report a growing inventory on dealer lots, especially for higher-priced vehicles like pickup trucks. Discounts vary based on vehicle demand, with smaller, less-expensive models and gas-electric hybrids generally being in shorter supply. Many consumers are delaying purchases, anticipating bigger discounts in the future.
“Waiting may be the optimal strategy here,” said Charlie Chesbrough, Senior Economist at Cox Automotive.
Performance of Major Automakers
Different automakers reported varying sales results for the quarter:
- Toyota: Experienced a 9.2% sales increase, buoyed by its popular gas-electric hybrids.
- Honda: Saw a 2.7% rise in sales.
- General Motors: Reported a modest 0.3% gain.
- Hyundai: Achieved a 1.8% increase.
- Subaru: Posted a 5.4% sales gain.
Conversely, some automakers faced significant declines:
- Stellantis: Sales plummeted by 20.7%, with Ram and Jeep brands experiencing drops of 26% and 19%, respectively.
- Nissan: Saw a 3.1% decline.
- Kia: Sales fell by 1.6%.
Overall, automakers sold approximately 4.13 million new vehicles from April through June, putting the industry on track to meet forecasts of nearly 16 million units for the year, slightly up from last year’s 15.6 million.
Interest Rates and Affordability
Interest rates for new vehicles are currently averaging just above 7%, which is high for many consumers who bought or leased vehicles years ago and now need replacements. Many buyers are opting for the few remaining lower-priced vehicles, typically in the mid- to upper-$20,000 range.
“The stuff that’s very affordable, that’s where it’s at,” said Ivan Drury, director of insights at Edmunds.com. “You really have to have an attractive product at an attractive price for it to move today.”
Market Trends and Consumer Preferences
Kevin Roberts, director of analytics for CarGurus, noted a shift in consumer searches towards more affordable vehicles, particularly those under $30,000. This trend suggests that automakers may need to adjust their production strategies to meet consumer demand for less expensive vehicles or increase discounts to make higher-priced models more appealing.
Impact of Production Changes
The auto industry is at a critical juncture. If manufacturers don’t adjust their strategies, they risk accumulating excess inventory of high-priced vehicles. However, a shift towards producing more affordable models could negatively impact profit margins, especially for Detroit automakers who have largely exited the small and midsize sedan markets due to profitability issues.
Pandemic Aftereffects and Current Trends
The COVID-19 pandemic significantly disrupted the auto industry, with production slowed by a shortage of essential computer chips. This supply constraint, coupled with strong demand, drove average vehicle prices to nearly $50,000 by December 2022. This year, however, improved chip supplies have increased production, and dealer inventories are rising. In June, dealers had about 3 million vehicles in stock, a 55% increase from the previous year, according to Cox Automotive.
As a result, the average selling price of new vehicles dropped by 1% to about $48,400 last month, though this is still 20% higher than pre-pandemic levels. Vehicles that remain on dealer lots the longest are typically large pickups or SUVs, with the Ram 1500 topping the list, staying on lots for an average of 141 days.
Electric and Hybrid Vehicle Sales
Electric vehicle (EV) sales in the U.S. rose by 7% in the first half of the year to 599,134 units, maintaining a 7.6% market share. Gas-electric hybrids saw even greater growth, with sales increasing by 35.3% to 715,768 units. Plug-in hybrids also saw a substantial rise, with sales up 24% to 159,399 units. These alternatives are attractive to consumers concerned about the range limitations of pure EVs.
Conclusion
The U.S. new-vehicle market is experiencing modest growth amid high prices and inventory adjustments. While current conditions are challenging, potential price drops and interest-rate cuts could spur future sales. The industry is navigating a complex landscape, balancing production strategies and consumer demands in a post-pandemic economy.
