Total new-vehicle sales for May, including retail and non-retail transactions, are projected to reach 1.3 million units, a 15.6% increase from May 2022, according to a joint forecast from J.D. Power and LMC Automotive.
May 2023 has 25 selling days, one more than May 2022. Comparing the same sales volume without adjusting for the number of selling days translates to an increase of 20.4% from 2022.
The Retail Sales Forecast
New-vehicle retail sales for the month are expected to increase when compared with May 2022. Retail sales of new vehicles this month are expected to reach 1.1 million units, a 9.6% increase from May 2022. Comparing the sales volume without adjusting for the number of selling days translates to an increase of 14.2% from 2022.
“The industry is positioned for another strong month in May as retail sales are estimated to surge 9.6% from a year ago,” said Thomas King, president of the data and analytics division at J.D. Power. “This positive performance is complemented by a projected 0.7% increase in average transaction prices. As a result, it is anticipated that consumers will spend nearly $47 billion on the purchase of new vehicles in May, showcasing a significant 13% growth from a year ago.
"Retail inventory levels in May are expected to finish at approximately 1.3 million units, remaining consistent with April’s level. However, this represents a substantial increase of 48% compared with May 2022,” King continued. “The improvement in vehicle availability has led to decreased dealer margins and increased manufacturer incentive spending in that same period. However, both metrics are relatively stable when compared with the previous month. The performance of the retail market continues to demonstrate robust demand for vehicles, augmented by consumers who have delayed purchases due to low inventory.
“Manufacturers continue to leverage increased vehicle production to allocate more vehicles to fleet customers,” he concluded. “Fleet sales are projected to increase 50% from May 2022.”
Prices Also Continue to Rise
New-vehicle transaction prices continue to rise, with the average price reaching a May record of $45,838. This is a 0.7% increase from a year ago. The record transaction prices means consumers are on track to spend nearly $46.9 billion on new vehicles this month---the second highest for the month of May and 13% higher than May 2022.
“The improved supply of vehicles vs. a year ago has resulted in a decline in dealer profits," King said. "However, dealer profits remain well above pre-pandemic levels. The total retailer profit per unit---which includes grosses and finance and insurance income---is expected to reach $3,732. While this is 25.8% lower than a year ago, it is still more than double the amount in May 2019.
"The primary reason for the decline in profit is that fewer vehicles are being sold for prices higher than the manufacturer's suggested retail price (MSRP)," King continued. "This month, only 31% of new vehicles are projected to be sold above MSRP, which is down from a high of 49% in July 2022.”
Total aggregate retailer profit from new-vehicle sales for this month is projected to be down 16.5% from May 2022, reaching $3.8 billion for the third-highest May on record.
“Retailers continue to engage in significant pre-selling of their inventory. However, due to higher inventory levels, more consumers are buying vehicles that are on the lot," King said. "In May, 46% of vehicles are projected to be sold within 10 days of their arrival at the dealership, which is down from the peak of 57% in March 2022. The average time that a new vehicle spends in the dealer's possession before being sold is expected to be 30 days, up from 12 days a year ago, but still less than half the pre-pandemic average of 70 days.
“Manufacturer discounts have remained relatively consistent compared with April but have increased materially from a year ago," King continued. "The average incentive spend per vehicle has risen 88.1% from May 2022 and is currently on track to reach $1,788. Expressed as a percentage of MSRP, incentive spending is currently trending at 3.7%, an increase of 1.6 percentage points from May 2022.
"One of the factors contributing to this low level of spending relative to historical norms is the lower discounts on leased vehicles. However, discounts on leased vehicles have risen significantly in recent months," King said. "This month, leasing is expected to account for 21% of retail sales, up significantly from the low of 16% in September 2022, but well below May 2019 when leased vehicles made up nearly 30% of all new-vehicle retail sales.
“Elevated pricing coupled with interest rate increases continue to inflate monthly loan payments. The average monthly finance payment in May is on pace to be $736, up $48 from May 2022. 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 be 7.0%, an increase of 206 basis points from a year ago."
Used Vehicle Prices Still High, but Start to Deflate
“Used-vehicle prices have declined slightly from a year ago but remain close to all-time highs," King said. "The average trade-in equity for May is trending toward $9,462, down $247 from a year ago, and down $613 since the peak in June 2022. For context, trade equity this month is still more than double the pre-pandemic level, helping owners offset some of the pricing and interest rate increases.
"In June, key metrics to monitor include inventory levels, pricing and interest rates. Despite the challenges posed by elevated interest rates and pricing, sales volume and transaction prices have displayed remarkable resilience, enabled by the combination of improved vehicle availability and pent-up demand," King continued. "If most interest rate increases have already occurred, consumers can anticipate excluding this factor from future monthly payment increases, potentially sustaining demand."
EV Prices Drive Industry Averages Higher
"In terms of pricing, a notable portion of the industry's price increases can be attributed to the sales mix of electric vehicles, while pricing for traditional gas-powered vehicles has demonstrated stability," King said. "It will be crucial to closely observe how manufacturers, consumers and other stakeholders in the EV space respond to any divergence in pricing. This becomes especially significant as the proportion of EVs within the overall sales mix continues to grow.”
Source: J.D. Power and LMC Automotive
