New light-vehicle sales in August totaled a SAAR of 13.2 million units, up roughly 0.7% from August 2021 but down 1.1% from this July. August 2022’s raw sales volume of 1.28 million units was roughly flat compared with July’s total. Inventory continues to be the main impediment to increasing new-vehicle sales volumes above the rates seen in recent months. August’s month-end inventory on the ground and in transit is expected to increase slightly from July’s month-end total of 1.15 million units.
According to J.D. Power, the average transaction price for August 2022 should reach $46,259, up 11.5% year over year and the highest on record. Average transaction-price records have been set and broken several times during 2022 as OEMs have produced a greater mix of higher-trimmed trucks, SUVs and crossovers. OEMs have also kept incentive spending low, given the continued strong demand for new vehicles. In August, average incentive spending per unit is expected to total $969, a year-over-year decline of 47.1% and the fourth month in a row below $1,000 per vehicle, says J.D. Power.
The higher prices, reduced incentives and rising interest rates are also pushing average monthly payments higher. J.D. Power expects the average monthly payment on a new-vehicle finance contract in August to reach a new record of $716, up $78 from August 2021. The average interest rate on a new-vehicle finance contract will likely be 5.51% in August 2022. This interest rate equals the average rate last seen in February 2020 and is the first time in two and a half years that the average rate has been this high.
Going forward, we expect that average interest rates on new- and used-vehicle finance contracts will continue to increase as the Fed increases the federal funds rate several more times before the end of the year in its ongoing efforts to rein in inflation across the economy. An increase in the federal funds rate of 75 basis points at the next Fed meeting in September is very likely and would bring the target range of rate to 3%-3.25%. Despite this additional upward pressure on vehicle prices and financing, we believe that new-vehicle sales will improve slightly in the final four months of the year and that for all of 2022 new light-vehicle sales will total 14.2 million units.
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