Total new-vehicle sales for December, including retail and non-retail transactions, are projected to reach 1.25 million units, a 5.3% increase from the same month in 2021, according to a joint forecast from J.D. Power and LMC Automotive.
December 2022 has the same number of selling days as December 2021.
The seasonally adjusted annualized rate (SAAR) for total new-vehicle sales is expected to be 13.2 million units, down 0.7 million units from 2021. New-vehicle total sales in Q4 2022 are projected to reach 3.5 million units, a 9.6% increase from Q4 2021 when adjusted for selling days. New-vehicle total sales for 2022 are projected to reach 13.7 million units, an 8.4% decrease from 2021 when adjusted for selling days.
The Retail Sales Forecast
New-vehicle retail sales for December 2022 are expected to decline when compared with December 2021. Retail sales of new vehicles are expected to reach 1.04 million units, a 2.8% decrease from December 2021. New-vehicle retail sales in Q4 2022 are projected to reach 2.9 million units, a 1.3% increase from Q4 2021 when adjusted for selling days. New-vehicle retail sales for 2022 are projected to reach 11.6 million units, an 11.3% decrease from 2021 when adjusted for selling days.
The Takeaways
“Retail inventory in December is expected to finish its third consecutive month at more than 1 million units," said Thomas King, president of the data and analytics division at J.D. Power. "With the improving inventory levels, December total sales volume will be up from a year ago; however there are still not enough vehicles produced to meet demand. Transaction prices will hit a record high for the month even with shoppers becoming a bit more sensitive to retailer mark-up addendums over MSRP. The reduction in mark-ups is pushing dealer profits off their record high levels, however, per-unit profitably is still nearly double pre-pandemic levels.
“While the inventory situation has improved modestly in the fourth quarter, supply remains well below the level at which consumer demand for new vehicles can be met. New-vehicle transaction prices continue to rise---albeit at a slower pace than earlier this year. The average price in December will set a record of $46,382, an increase of 2.5% from a year ago.”
The record transaction prices means that buyers are on track to spend nearly $48.2 billion on new vehicles in December---the third highest level ever for the month of December and a slight 0.3% decrease from December 2021.
“Dealer profits per unit are off their record highs mostly due to a reduction in dealer addendums but remain extremely strong. Total retailer profit per unit---inclusive of grosses and finance and insurance income---is on pace to be $4,144, down 19.8% from a year ago but still more than double 2019 levels," King said. "The decline is due primarily to fewer vehicles being sold above MSRP. In December, 37% of new vehicles are being sold above MSRP, down from 50% in July 2022.”
Total aggregate retailer profit from new-vehicle sales for the month of December is projected to be down 22% from December 2021, reaching $4.3 billion for the second-best December on record.
“Dealerships are continuing to pre-sell a good portion of their available inventory allocation, but increased production means vehicles are spending slightly more time at dealerships," King said. "This month, 47% of vehicles will be sold within 10 days of arriving at a dealership, down from a high of 57% in March. The average number of days a new vehicle is in a dealer’s possession before being sold is on pace to be 23 days—up from 18 days a year ago.
“Manufacturer discounts are up slightly from a month ago, however, they remain historically suppressed. The average incentive spend per vehicle is tracking toward $1,187, a decrease of 21.4% from a year ago," King continued. "Incentive spending per vehicle expressed as a percentage of the average vehicle MSRP is trending at 2.5%, down 0.8 percentage points from December 2021. One of the factors contributing to the low level of spending is the absence of discounts on vehicles that are leased. This month, leasing is accounting for just 18% of retail sales. In December 2019, leases accounted for 30% of all new-vehicle retail sales.
“Elevated pricing coupled with repeated interest rate increases continue to inflate monthly loan payments," King said. "After breaking the $700 level for the first time on record in July, the average monthly finance payment in December is on pace to be $718, up $47 from December 2021. That translates to a 7.0% increase in monthly payments from a year ago. The average interest rate for new-vehicle loans is expected to increase 247 basis points from a year ago to 6.4%.
"Used-vehicle prices are falling modestly which is resulting in less trade-in equity for new vehicle buyers. The average trade-in equity for December is trending toward $9,316, a -3.1% ($297) decrease from a year ago and down $786 since the peak in June 2022," King continued. "For context, December 2022 trade equity is still more than double the pre-pandemic level helping consumers that have a vehicle to trade in offset some of the pricing and interest rate increases.
“Full year 2022 will show a total sales decrease from 2021 due to production constraints. The year-over-year sales increases experienced for the final five months of 2022 were not enough to offset the year-over-year sales declines in the first half of 2022 which are compared with the record sales pace in the first half of 2021," King said. "Pricing and per unit profitability will achieve record levels for full-year results. Overall, despite limited production constraining sales volume, the industry is closing out the year with strong underlying financial results.
“Looking at 2023, retail sales will continue to be dictated by the number of vehicles shipped to dealerships. Indications are that shipments will rise incrementally throughout the year, allowing sales to increase from 2022 levels," King concluded. "However, even with the probability of an economic downturn, pent-up consumer demand from the past two years will keep inventory levels relatively low. Therefore, 2023 is likely to be another year of relative healthy pricing and profitability.”
Source: J.D. Power
