Retail sales projections from Edmunds, Cox Automotive, J.D. Power and LMC Automotive identified the drivers that are going to impact used-car departments this month as well as perhaps a year or more down the road.
Aided by an extra sales day this July, Edmunds estimated that 3.4 million used vehicles will be sold this month for a seasonally adjusted annual rate (SAAR) of 39.6 million. That’s compared to 3.3 million used sales — or a SAAR of 39.5 million — recorded in June.
Meanwhile, Cox Automotive is expecting fleet sales — both commercial and rental — to be the underpinnings of July’s new-vehicle sales figure, which might rise slightly.
And especially if they’re purchasing a new vehicle, J.D. Power and LMC Automotive are projecting that buyers will continue to pay more as retail prices climb.
Edmunds July forecast
Edmunds is forecasting that 1,380,771 new cars and trucks will be sold in the U.S. in July for an estimated seasonally adjusted annual rate (SAAR) of 16.5 million. This projection reflects a 9.3% decrease in sales from June, but a 0.5% increase from July of last year.
Edmunds acknowledged that July is expected to be the first month in 2019 to show a boost in monthly new-model sales compared to 2018. However, Edmunds experts caution this is not the first sign of a turnaround.
“A lot of people are enjoying vacations and family time in July, so it’s generally not a strong month for auto sales. The fact that automakers could eke out a slight gain is encouraging but not necessarily indicative of a positive trend,” Edmunds senior manager of insights Jeremy Acevedo said.
“The extra selling day makes things look a little better than they really are, and we still believe sales will continue to trend downward through the back half of the year,” Acevedo continued.
Edmunds analysts noted that dealers are starting to get more motivated to move aging inventory off their lots, which is also expected to augment July sales.
“The model-year sell-down is in full swing,” Acevedo said. “We’re seeing old cars lingering on dealer lots a bit longer than they should, which means that shoppers could see more attractive sales events as we head into the end of summer.”
Edmunds estimates that retail SAAR will come in at 14.2 million vehicles in July 2019, with fleet transactions accounting for 14.0% of total sales.
Cox Automotive July analysis
And speaking of fleet sales, that’s a good portion of what the Cox Automotive team is watching.
Cox Automotive is forecasting July U.S. auto sales volume to finish at 1.38 million, rising 0.5% from last year, or about 7,000 units. The seasonally adjusted annual rate (SAAR) is expected to drop to 16.6 million, below June’s 17.3 million level, and down slightly from July 2018’s 16.7 million pace.
Cox Automotive pointed out this July has 25 selling days, one more than last July, which causes the SAAR to fall significantly even though sales volume rises.
“Strong consumer confidence and employment gains are supporting stable demand for light vehicles,” Cox Automotive senior economist Charlie Chesbrough said. “However, affordability issues continue to weigh on the market. The estimated average transaction price for a new light vehicle in the U.S. is $37,285 in the most recent Kelley Blue Book report, and we do not see this number coming down.”
In total, Cox Automotive determined new-vehicle sales in the first half of 2019 dropped 2.2%, or nearly 200,000 units. Analysts insisted that Fleet sales, both commercial and rental, have been the key to supporting the new-vehicle market in the first half. They are likely to remain strong through the year.
Cox Automotive added that retail purchasing and leasing activity was down in the first half of this year, extending the trend from 2018, as consumer activity slows due to affordability concerns.
“Volatility has been as issue in the market in 2019 as the SAAR has shown large swings over various months,” Cox Automotive said. “Some of these swings can be attributed to the harsh winter in much of the country. However, the largest variable continues to be fleet volume.
“Sales of both commercial and rental fleet vehicles have been on the rise due in part to increased depreciation allowances for business-use vehicles,” Cox Automotive added. “The market has seen increased fleet activity and business-use vehicle purchases, and this trend is likely to extend into 2020.”
Projections from J.D. Power and LMC Automotive
And continuing the refrain, mew-vehicle retail sales in July are expected to fall from a year ago, according to a forecast developed jointly by J.D. Power and LMC Automotive. Analysts from those firms said retail sales are projected to reach 1,178,500 units, a 2.0% decrease on a selling day adjusted basis compared with July 2018.
Total sales in July are projected to reach 1,397,400 units, a 1.8% decrease compared with July 2018 (selling day adjusted). The seasonally adjusted annualized rate (SAAR) for total sales is expected to be 16.7 million units, flat versus a year ago.
“July will be another month of modest sales declines — but with high vehicle expenditures — as the average new vehicle sales price exceeds $33,000, up over $1,400 from July 2018,” said Thomas King, senior vice president of the data and analytics division at J.D. Power.
King explained the jump in sales price is being driven by consumers paying more for recently launched SUVs and more attractive interest rates on new vehicles that help keep monthly payments affordable when purchasing more expensive vehicles.
J.D. Power noted the SUV share of new vehicles sold through mid-July has risen to an all-time high level, accounting for nearly 52% of new-vehicle sales. The growth has been led by several recent launches in the midsize SUV segment, which currently sits at its highest share ever (15.8%).
Analysts pointed out the strong demand for SUVs is coming at the expense of less-expensive sedans which account for approximately 28% of industry retail sales for the third consecutive month.
J.D. Power added the average new vehicle sales price is projected to reach $33,182 this month — the highest level ever for the month of July — up more than 4% or $1,415 from last year. The average price for cars is up 5% to $26,853 while trucks/SUVs are up 3% to $35,487.
Analysts went on to mention industry incentive spending is rising and is on pace to exceed $4,000 per unit for the month, the highest level since December 2018. However, the increase in incentive spending on a dollar basis is commensurate with the higher-priced vehicles being purchased by consumers. Manufacturer incentive spending as a percentage of MSRP in July is 10%, the same as last year.
King did note that vehicle shoppers are taking advantage of lower interest rates to finance their vehicles. According to J.D. Power, the average APR for a new-vehicle financing so far in July is 5.7%, down more than 50 basis points from earlier in the year. King highlighted sales with an APR of less than 1% have accounted for 9.2% of new-vehicle financing.
“Despite the continued slow-down in sales, consumers are expected to spend more than $2 billion more on new vehicles than last year,” King said.
“This is a clear reflection that manufacturers are building the types of vehicles that shoppers want. Consumer expenditures in July of $39 billion represents the highest level for the month since 2017,” he went on to say.
Looking forward, both J.D. Power and LMC Automotive reiterated that August is traditionally one of the busiest sales months of the year. This year, analysts noted August sales will be inflated by the inclusion of an extra weekend compared to last year, as well as the fact that sales over Labor Day will be included in the manufacturers’ August results.
As manufacturers look to take advantage of heavy shopping during the month, J.D. Power and LMC Automotive said a key question is an extent to which they can maintain incentive discipline. The temptation to increase discounts, particularly to clear out inventories of 2019 model-year vehicles will be significant, according to analysts.
“There are signals that auto sales in the second half of 2019 are poised to outperform expectations,” said Jeff Schuster, president of Americas operations and global vehicle forecasts at LMC Automotive. “While trade risk remains a threat, transaction prices continue to rise and economic growth is moderating, sales in the second half of the year could outperform expectations consistent with strength in the previous five years.
“This year sees higher fleet volume year-to-date, falling interest rates and escalating incentives. It won’t change the fact that the market will be down from 2018, but if consumers respond to the favorable environment, a run-up at the close of 2019 is possible,” Schuster went on to say.