US new-vehicle sales slow in January after strong December

26 January 2024

According to a joint forecast from J.D. Power and GlobalData, new-vehicle sales in the US can be expected to slow in January. However, this does follow a strong December.

Total new-vehicle sales for January 2024, including retail and non-retail transactions, are projected to reach 1,087,900 units, a 1.5% decrease from January 2023. January 2024 has 25 selling days, one more than January 2023.

Comparing the same sales volume without adjusting for the number of selling days translates to an increase of 2.7% from a year ago. The seasonally adjusted annualised rate (SAAR) for total new-vehicle sales is expected to be 15.2 million units, flat from January 2023.

New-vehicle retail sales for January 2024 are expected to reach 862,400 units, a 1.8% decrease from January 2023. Comparing the same sales volume without adjusting for the number of selling days translates to an increase of 2.3% from 2023.

Slower pace in January

‘After December 2023 reached the strongest sales pace in several years, January’s pace has slowed to 15.2 million units. December’s SAAR of 16.2 million was inflated by elevated discounts from manufacturers, particularly as they aimed to clear out remaining inventory of 2023 model-year vehicles,’ said Thomas King, president of the data and analytics division at J.D. Power.

‘In addition, changes in the eligibility of many electric vehicles to qualify for government rebates, which took effect on 1 January, meant many EV purchases that would have occurred in January were made in December.

‘Since January is the month of the year when the fewest vehicles are sold, the aforementioned factors have a bigger effect on the SAAR than they would in higher volume months. While the drop in the SAAR is notable, January sales results historically are not particularly indicative of future sales performance,’ King added.

Retail inventory levels in January are expected to finish around 1.6 million units, a 3.3% increase from December 2023 and a 38.1% increase compared with January 2023. Fleet mix is projected at 20.7%, up 0.3 percentage points (pp) from January 2023.

‘Average new-vehicle retail transaction price is declining mostly due to shifts to smaller and more affordable segments that have increased in availability. Transaction prices in January are trending towards $45,106 (€41,505), down $1,636 — or 3.5% — from January 2023,’ he said.

‘However, even with the decline in average transaction prices, consumers are on track to spend nearly $37 billion on new vehicles this month — the third highest on record for the month of January, just 2% lower than January 2023.’

Declining retailer profits

‘The increase in new-vehicle supply is resulting in declining per unit dealer profits, but those profits continue to exceed pre-pandemic levels. The total retailer profit per unit — which includes vehicles gross plus finance and insurance income — is expected to be $2,817 in January, down 28.5% from January 2023,’ King stated.

‘The primary factor behind the profit decline is the reduced number of vehicles selling above the manufacturer's suggested retail price (MSRP). Thus far in January, only 18.5% of new vehicles have been sold above MSRP, which is down from 33.1% in January 2023,’ he highlighted.

Total aggregate retailer profit from new-vehicle sales for this month is projected to be $2.3 billion, down 27.4% from January 2023.

‘While retailers continue to pre-sell vehicles, rising inventory is enabling more shoppers to buy directly off of dealer lots. In January, 32.7% of vehicles are projected to sell within 10 days of their arrival at the dealership, which is down from the peak of 58% in March 2022. The average time that a new vehicle spends in the dealer's possession before being sold is expected to be 40 days, up 13 days from a year ago.

‘Manufacturer discounts in January are expected to be down $287 from December but have materially increased from a year ago when incentives were near record lows. The average incentive spend per vehicle has grown 74.2% from January 2023 and is currently on track to reach $2,346.

‘Expressed as a percentage of MSRP, incentive spending is currently at 4.8%, an increase of 2pp from January 2023. This month, leasing is expected to account for 25.6% of retail sales, up 7.8pp from 17.8% in January 2023,’ King explained.

Finance payments stabilising

Declining average transaction prices due to increased availability of affordable segments from manufacturers are resulting in a stabilisation of average monthly finance payments.

The average monthly finance payment in January is on pace to be $721, down $6 from January 2023. That translates to a 0.8% decrease in monthly payments from a year ago. The average interest rate for new-vehicle loans is expected to be 7.1%, an increase of 34 basis points from a year ago (with 1 basis point equal to 0.01%).

‘So far in January, average used-vehicle prices are $28,100, reflecting a 2.4% or $694 decrease from January 2023. The decline in used-vehicle values is translating to lower trade-in equity for consumers. The average trade-in equity is trending towards $8,345, down $1,048 from a year ago,’ he said.

The details

• Average incentive spending per unit in January is expected to reach $2,346, up from $1,346 in January 2023. Spending as a percentage of the average MSRP is expected to increase to 4.8%, up 2pp from January 2023.
• Average incentive spending per unit on trucks/SUVs in January is expected to be $2,546, up $1,186 from a year ago, while the average spending on cars is expected to be $1,727, up $434 from a year ago.
• Retail buyers are on pace to spend $37 billion on new vehicles, down $0.7 billion from January 2023.
• Trucks/SUVs are on pace to account for 79% of new-vehicle retail sales in January.
• Fleet sales are expected to total 225,468 units in January, flat from January 2023 on a selling day adjusted basis. Fleet volume is expected to account for 20.7% of total light-vehicle sales, up 0.3ppts from a year ago.
• Average interest rates for new-vehicle loans are expected to increase to 7.1%, 34 basis points higher than a year ago.

Slow start for EV retail share

‘The first three weeks of 2024 have started slowly for electric vehicle (EV) retail share, dropping to 8.1% from a high of 9.2% at the end of 2023. There was a similar dip in January 2023 when new rules for the Inflation Reduction Act (IRA) incentive kicked in specifying income and price limits for EV eligibility. Now, the rules have changed again regarding battery component manufacturing or assembly,’ said Elizabeth Krear, vice president, electric vehicle practice at J.D. Power.

‘Furthermore, the credit is disallowed if any of a vehicle's battery components were manufactured or assembled by a Foreign Entity of Concern. The result is that several popular EVs have lost the purchase credit.

‘For those vehicles and buyers that still qualify, the credit can now be used as a down payment at the point of sale instead of waiting until filing tax returns — and all EVs still qualify for the tax incentive on a lease transaction,’ she added.

‘Several manufacturers have announced plans to bring their vehicles back into the fold in the coming months by adjusting their supply chains. In the interim, we expect to see more incentives and leasing to bridge the gap.

‘With the January IRA changes and the delay of EV vehicle plans by some key manufacturers, we have adjusted our 2024 forecast of EV retail share by half a percentage point. We forecast EV retail share to reach an average of 12.4% in 2024. Conversely, several manufacturers have restated their commitment to EVs this year. This opens the door for them to capture their share of the 4% EV market growth expected in 2024,’ Krear said.

The global sales outlook

‘Global light-vehicle sales finished the year strongly, posting a selling rate of 94 million units in December 2023 — an increase of 13% from December 2022. Strong domestic and export volume in China — up 24% year on year — once again leads the way in increases,’ Jeff Schuster, group head and executive vice president, automotive at GlobalData explained.

‘North America’s 15% year-on-year increase was boosted by year-end discounting. Europe was up just 4% from December 2022, as Western Europe contracted 4% on base effect in Germany as sales were pulled forward.

‘Global light-vehicle sales finished 2023 at 90 million units, an increase of 11%, the highest level since the pandemic. While the overall level of risk from internal and external factors is still elevated, a level of stability and more consistency is expected as we start 2024,’ he added.

Nominal increase expected

‘January 2024 is not expected to show any material drop-off in sales momentum as is typical at the start of a year. The selling rate is projected to be at 92 million units with an increase in volume of 30% from January 2023.

‘Much of the projected gain can be attributed to China, as January 2023 was especially weak due to a COVID-19 outbreak and the expiration of some tax incentives. Most other major markets are expected to increase by single digits. ‘The forecast for global light-vehicle sales in 2024 is for 92.4 million units, a nominal increase of 2% from 2023, but most of the attention may be below the top line. Regulatory pressure remains on the industry for the transition to EVs and we expect continued expansion of the EV market in 2024. BEVs are forecasted to increase to 15% of global light-vehicle sales and EVs to nearly 35% of sales, but the transition is slower than needed in some markets to meet the various regulations,’ Schuster concluded