By Nathalie Voit
Consumer demand for new vehicles is expected to take a hit this month as vehicle shortages prompted by ongoing supply-chain challenges push car prices to a near record-high, automotive analytics firms J.D. Power and LCM Automotive said in a joint press release.
According to the joint forecast, retail sales of new vehicles in May are projected to reach 1,013,700 units, a 20.9% decrease over the same period last year.
Total new vehicle sales for the month, including retail and non-retail transactions, are forecast to hit 1,188,100 units, an 18.0% decrease from 12 months ago.
The bleak auto sales outlook can be attributed to dwindling inventory prompted by supply constraints within major markets, such as the fallout from the COVID-19 lockdowns in China and the evolving war in Ukraine.
“The industry sales pace is being dictated by how many units are delivered to retailers during the month, and demand far exceeds supply,” President of the data and analytics division at J.D. Power Thomas King said in the release. According to King, month-ending retail inventory is below one million vehicles for the twelfth successive month. The result? “Record transaction prices.”
According to data from the firms, new vehicle prices have surged 15-20% year-over-year during the past twelve months, compared with just 2-3% between 2012 and 2018.
Unbridled inflation within the industry led to some of the highest prices on record. The average new-vehicle transaction price in May is expected to soar to $44,832, the third-highest level reported and a 15.7% increase from one year ago. The figure is just over $400 less than the all-time high of $45,247 observed in December 2021.
At the same time, average interest rates for new car loans continue to rise. In May, J.D. Power and LCM said the average rate for a new vehicle loan is projected to increase 62 basis points from one year ago to 4.92%.
The higher loan rates have made financing a car less affordable for new-vehicle buyers, even with elevated trade-in values for used cars. Consumers looking to finance a new automobile in May are looking at a 15.1% rise in monthly payments compared to last year or a monthly loan payment of roughly $687.
The higher transaction costs mean that consumers are expected to shell out $45.4 billion on new cars and trucks this month despite the overall lowered sales forecast. The figure is an $8.3 billion decrease from May 2021.
While greater vehicle availability and higher interest rates in the latter half of 2022 will likely decelerate new vehicle price growth, King said those factors are “unlikely to lead to declines” in prices.
