New Vehicle Sales in May Expected to Jump by 20%
Forecast Stays True
Initial estimates of new-vehicle sales in May indeed suggest that year-over-year volume growth was even stronger than our forecast of 20.3%. New-vehicle inventory was at a two-year high heading into the month, and some automakers were beginning to turn up the volume on incentives. As expected, pent-up demand and improved inventory levels helped drive higher sales volumes. May is often a good month for new-vehicle sales, and May 2023 did not disappoint. Honda delivered a particularly notable year-over-year gain of nearly 60%, but the company’s performance a year ago was remarkably low due to depleted inventory levels. Mazda had a stand-out month, among the best in a decade, and the Hyundai and Kia brands continued to deliver consistently good results. Sales estimates for some of the largest automakers, including the domestic brands, indicate sales improved year over year but well less than the industry average.
The Cox Automotive Industry Insights team had forecast a May sales pace of 14.9 million, but the seasonally adjusted annual rate (SAAR) of sales likely came in even a bit higher, 15.0 million. Our team will finish its final counts next week, but May’s story will not change. We were expecting a sizable volume increase compared to one year ago, and that indeed was the case. The new-vehicle market in the U.S. has changed significantly in the past 12 months. For the most part, the industry’s inventory drought is now over, and pent-up demand is returning to the market. Prices continue to be elevated, and new-vehicle loan rates are averaging near 9%. Still, there are buyers in this market, and new-vehicle sales continue to surprise on the upside.
Despite Higher Interest Rates YOY, Sales Increased
“New-vehicle sales will show strong gains this month over last year’s levels, and on the surface, this is a bit surprising,” said Cox Automotive Senior Economist Charlie Chesbrough. “Interest rates are substantially higher than a year ago, as are vehicle prices, and yet sales will increase year-over-year. The reason? Vehicle shoppers now have a much better chance of finding something that fits their needs. Pent-up demand, held back by limited product availability last year, is now being fulfilled as inventory levels improve around the country.”
Although new-vehicle sales have shown resilience thus far in 2023, some slowdown in the second half of this year is expected. Economic headwinds have not subsided and are expected to slow the vehicle sales recovery, although more incentives and more fleet volume will continue to support overall sales volume.
Anchored by Memorial Day weekend, May is traditionally one of the stronger months in any given year for new-vehicle sales. In May 2023, there are 25 selling days, one fewer than last month. There were 24 selling days in May 2022. And while sales volume of 1.35 million is a notable gain over last year, May sales volume averaged 1.57 million units from 2015 to 2019.
All percentages are based on raw volume, not daily selling rate.
Sizable Inventory Leads to Rise in Sales Estimates
New-vehicle sales when announced next week by many automakers are expected to show sizeable gains over last year, but a decline versus last month. The seasonally adjusted sales pace, or SAAR, is expected to finish near 14.9 million in May, a notable drop from April’s surprisingly strong 15.9 million level. Affordability issues, driven in part by high interest rates and elevated new-vehicle prices, continue to weigh negatively on sales, as typical monthly payments for new-vehicle loans are well above $700 in today’s market. Compared to a year ago, the forecast for May reveals a significantly changed market. Sales volume is forecast to jump more than 20% year-over-year, thanks to far better inventory levels. A year ago, according to an analysis of vAuto Available Inventory data, total new-vehicle inventory at retail outlets across the U.S. stood at approximately 1.1 million units. This year, heading into the month of May, inventory was at a two-year high and above 1.9 million units, an increase of nearly 70%. Tight inventory was the key driver of lower sales in 2022. This year, as inventory builds for many brands, demand, not supply, is becoming the market driver.
Sources
1. Cox Automotive Inc. New-Vehicle Sales in May Expected to Jump by 20% as Inventory
Concerns Fade; https://www.coxautoinc.com/news/cox-automotive-forecast-may-2023-u-s-
auto-sales-forecast/
