US sees inflated new-vehicle sales in July

26 July 2024

The US new-vehicle market has recorded inflated sales figures in July. The latest forecast from J.D. Power outlines the projected growth and explores the reasons behind the boosted numbers.

In July, new vehicle sales in the US are projected to reach 1,340,500 units, including retail and non-retail transactions. This would result in a year-on-year increase of 2.8%. The month has 25 selling days, the same amount as July 2023.

The seasonally-adjusted annualised rate (SAAR) for new-vehicle sales is expected to be 16.7 million units, the highest point in more than three years. This is up by around 700,000 units compared with July 2023. New-vehicle retail sales are expected to reach 1,135,300 units, a 5% increase year on year.

Inflated numbers

‘While the top-line sales results are impressive, they are being inflated by sales that would have otherwise occurred in June. The delay occurred because of the software outages in June that limited many dealers’ ability to process transactions, affecting the June sales pace,’ said Thomas King, president of the data and analytics division at J.D. Power.

‘The July sales pace would be stronger still were it not for a combination of factors that are affecting consumer demand. While discounts from dealers and OEMs grew in July from June, the increases were slightly smaller than is typical, since July is historically when manufacturers start to elevate discounts on prior model-year vehicles.

‘In addition, the industry is also now dealing with the consequences of reduced leasing three years ago. Fewer leases three years ago mean that fewer lessees are returning to dealers to buy or lease a new vehicle today. The volume of leases expiring decreased 7.5% in July from June, following a 14.4% drop in June from May. With fewer lease customers returning to the market, there are fewer opportunities for new lease sales.

‘After a period of rising new-vehicle inventory on dealer lots, which increases choices for shoppers, there has been a reversion in July. Overall inventory is down 6.7% from the end of June. This is mostly due to the timing of the 2025 model-year transition which creates temporary disruptions in vehicle availability. By month’s end, retail inventory is projected to be around 1.6 million units, a decline from recent months, but still a considerable 32.5% increase from July 2023,’ he added.

Falling transaction prices

The average new-vehicle retail transaction price is declining compared with a year ago due to higher manufacturer incentives, larger retailer discounts and rising availability of lower-priced vehicles. Transaction prices are trending towards $44,271 (€40,815), down $1,166 or 2.6% from July 2023.

The combination of slightly higher retail sales and lower transaction prices means that buyers are on track to spend nearly $47.8 billion on new vehicles this month, 3% higher than in the same period last year, and the second-highest July on record.

‘Total retailer profit per unit, which includes vehicles gross plus finance and insurance income, is expected to be $2,298, down 33% from July 2023. Rising inventory is the primary factor behind the profit decline and fewer vehicles are selling above the manufacturer's suggested retail price (MSRP). So far this month, only 14.5% of new vehicles have been sold above MSRP, which is down from 32.4% in July 2023,’ King said.

Total aggregate retailer profit from new-vehicle sales for this month is projected to be $2.5 billion, down 29.2% from July 2023.

‘Increased inventory means fewer vehicles are being pre-sold by retailers, with more shoppers able to buy directly off dealer lots. This month, J.D. Power forecasts that 32.3% of vehicles will sell within 10 days of arriving at the dealership, down from a peak of 58% in March 2022. The average time a new vehicle remains in the dealer's possession before sale is expected to be 47 days, up from 29 days a year ago,’ he added.

Discounts continue to rise

‘Manufacturer discounts are continuing to rise,’ King pointed out. ‘The average incentive spend per vehicle has grown 52.1% from July 2023 and is currently on track to reach $2,892. Expressed as a percentage of MSRP, incentive spending is currently at 5.9%, an increase of 1.9 percentage points (pp) from a year ago. Spending has increased by $197 per unit from June 2024. 

‘One of the drivers of higher incentive spending from a year ago is the increased availability of lease deals, and leasing is growing accordingly from a year ago. This month, leasing is expected to account for 23.7% of retail sales, up 4pp from 19.8% in July 2023,’ he said.

Average monthly finance payments in July are on pace to be $727, up $5 from July 2023. The average interest rate for new-vehicle loans is expected to be 6.90%, flat from a year ago.

So far in July, average used-vehicle retail prices are $28,070, reflecting a decrease of 5.4%, equating to a $1,601 drop from a year ago. The decline in used-vehicle values is translating to lower trade-in equity for owners, now trending towards $7,809, which is down $1,118 year on year.

‘This year, the Labor Day holiday weekend will fall within the August sales reporting period. The Labor Day weekend is one of the year's largest selling weekends and typically falls within the September reporting period. August results this year are likely to be unusually strong and will skew typical year-over-year comparisons,’ King continued.

‘The key question is the extent to which manufacturers and dealers will attempt to leverage elevated shopping activity through aggressive discounts. Historically, the Labor Day weekend has been an excellent opportunity to find a great deal on a prior model-year vehicle,’ he added.

The details

• Average incentive spending per unit in July is expected to reach $2,892, up by $990 from July 2023. Spending as a percentage of the average MSRP is expected to increase to 5.9%, up 1.9ppfrom July 2023.
• Average incentive spending per unit on trucks/SUVs in July is expected to be $3,016, up $1,069 from a year ago, while the average spending on cars is expected to be $2,391, up by $660 from a year ago.
• Retail buyers are on pace to spend $47.8 billion on new vehicles, up by $1.4 billion from July 2023.
• Trucks/SUVs are on pace to account for 79.9% of new-vehicle retail sales in July.
• Fleet sales are expected to total 205,212 units in July, down 8.1% from July 2023. Fleet volume is expected to account for 15.3% of total light-vehicle sales, down 1.8 percentage points from a year ago.

A slower pace

‘EV adoption is growing but at a slower pace. While premium segment retail sales are down 13%, driven by Tesla’s 22% decline, the mass market segment is up 63%. This is primarily due to increasing product availability as the percentage of mainstream shoppers who have viable EV alternatives has jumped to 56% from 38% in January,’ commented Elizabeth Krear, vice president, electric vehicle practice at J.D. Power.

‘Affordability of premium EVs has been at parity with internal-combustion engine (ICE) versions for some time, but still generally lags in the mass market segment. That said, significant strides have closed the gap this year and in high-volume segments.

‘Among compact SUVs, the average transaction price, excluding federal tax incentives, has declined more than $10,000. Five-year total cost of ownership for popular vehicles like the Chevrolet Blazer EV and the Ford F-150 Lightning is less expensive than comparable ICE powertrains.

‘As availability and affordability continue improving in the mass market segment, EVs will attract more mainstream shoppers, but growth in charging infrastructure remains a critical part of the equation. Analysing the J.D. Power EV Index, which tracks monthly consumer interest, product availability, affordability, charging infrastructure and owner satisfaction, the biannually updated J.D. Power EV retail share forecast for 2024 has been reduced to 9% from 12%. Mass market shoppers need confidence that price parity will stick and that charging accessibility will continue to improve,’ Krear concluded.