TYSONS, Va. (July 2, 2019) – Patrick Manzi, senior economist with the National Automobile Dealers Association (NADA), issued an analysis of U.S. auto sales and the economy following the end of the second quarter in 2019:

What happened in June 2019? 

Manzi: We expect sales in June to finish up the month at a SAAR of 17 million units, which would represent roughly a 1-2% decrease from June of last year. This would be the third month this year with a SAAR of 17 million units or more. Light trucks will account for more than 70% of all new vehicles sold.

What happened in the first two quarters of 2019?

Manzi: Sales have declined relative to 2018 each month this year, but overall, not more than we expected. Transaction prices on both cars and light trucks continued to rise and set new records. According to the latest NADA Average Dealership Financial Profile Series from April 2019, the average new-vehicle transaction price was $36,642, up 3.3% compared to this time last year. Transaction prices on used vehicles sold by franchised dealers have also risen. The average used-vehicle transaction price in April was $20,979, up 3.8% compared to this time last year. The average monthly payment gap between new and used vehicles continues to increase, which will likely result in more consumers shifting to the used market.

Incentive spending fell in April but picked back up in May. Compared to last year, average incentive levels were lower each month this year except for May. According to J.D. Power, average incentive spending in May was $3,816 per vehicle, an increase of $12 compared to last year. If inventory levels get to too high, we will see incentive spending pick up to help clear out dealer lots.  

What are some key trends for the rest of the year and potential headwinds and tailwinds?

Manzi: We expect that off-lease vehicle returns will peak over the summer months and will total more than 4 million units this year. Off-lease inventories will remain robust over the next few years due to high leasing penetrations over the past few years. As prices continue to climb on the new vehicle side for both loans and leases, more and more consumers will shift the used vehicle market. Low vehicle sales during the Great Recession have resulted in supply constraints of older and lower priced vehicles, which will cause prices at the lower end of the spectrum to remain elevated in the near term.

The Fed has signaled that we will not see any interest rate increases in 2019 and some believe that we may even see an interest rate cut of 25 basis points before the end of the summer. This will help slow the monthly payment creep that we saw in 2018. Payments will still likely increase throughout the remainder of the year because of rising vehicle costs, but we won’t have the added pressure of cost increases coming from rising interest rates. We have seen credit standards tightening in recent months with a larger share of auto loans being made to more creditworthy customers. We expect that this will continue throughout the year as well.

What are some macroeconomic indicators that could impact auto sales?

Manzi: Consumer confidence readings have been volatile in recent months due to trade related uncertainty, but still remain high and indicate that consumers will still be willing to make large purchases. Economic growth is slowing, and 2019 Q2 GDP growth is expected to fall off significantly compared to Q2 of last year. We expect 2019 Q2 GDP growth of 1.5%, down from 3.1% in 2019 Q1 and significantly lower than the tax cut boosted growth rate of 4.2% in 2018 Q2. For the year, we expect GDP growth to return to a more long-term trend level of growth just above 2%.
 
Unlike last year, the positive effects of tax cuts will be less pronounced this year. Job gains seem to be slowing in the late stages of what is now the longest period of expansion on record. And there’s uncertainty surrounding the implementation of tariffs on imported autos and auto parts, which if implemented later this year will cause new vehicle prices to rise and sales to fall.

Are you sticking to your original forecast of 16.8 million light vehicle sales in 2019?

Manzi: Yes. New light-vehicle sales will likely continue to decline for the rest of the year compared to 2018, but we remain confident, barring any unexpected shocks, that franchised dealerships are on track to sell 16.8 million new light vehicles in 2019. The downside risks to our sales forecast include the fallout from trade disputes, including potential tariffs on autos and auto parts, and the Fed changing course on interest rates. 

NADA, founded in 1917, represents more than 16,500 light-vehicle and commercial-truck dealerships, with both domestic and international franchises.