TYSONS, Va. (April 1, 2019) – Patrick Manzi, senior economist with the National Automobile Dealers Association (NADA), issued an analysis of U.S. auto sales following the end of the first quarter in 2019:

What happened in March 2019? 

Manzi: Consumer preferences continued to shift from cars to light trucks. We expect light truck market share to inch closer to 70 percent of the overall new light-vehicle market, up roughly two points from this time last year. New vehicle sales were up from February, but down compared to March 2018. The first quarter of 2019 will end with sales down between 2 and 3 percent compared to the first quarter of 2018. We expect that the year-to-date seasonally adjusted annual rate (SAAR) of sales to come in at 16.8 million units for the first quarter, right in line with our forecast for 2019.

What happened in first quarter of 2019?

Manzi: The first quarter began the year with a sluggish start to new vehicle sales because of several weather-related events, the federal government shutdown and increasing competition in the used vehicle market. Transaction prices on both cars and light trucks continued to rise. According to the latest NADA Average Dealership Financial Profile Series from January 2019, the average new vehicle transaction price was $36,410, up 3.3 percent 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 January was $20,797, up 4.3% 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 is down compared to the same period a year ago. We expect more discipline from automakers with incentive spending throughout the year. According to J.D. Power, average incentive spending per unit is down $119 to $3,821 through March 2019. Incentive spending has been reduced more on car models than light trucks. If inventory levels get to too high, we may see incentive spending pick up to help clear out dealer lots.  

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

Manzi: Inventory levels of off-lease vehicles are expected to peak in the coming months, but there will still be a steady supply over the next few years. As prices continue to climb on the new vehicle side, more and more consumers will consider the used vehicle market. The Fed has signaled that we may not see any interest rate increases in 2019. This will help slow the monthly payment creep that we saw in 2018. Payments will still likely increase throughout 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 credit worthy 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 is waning, but it remains high and indicates that consumers will still be willing to make large purchases. Economic growth is slowing and is expected to return to a more long-term trend level of growth around 2%. Unlike last year, the positive effects of tax cuts will be less pronounced this year. There’s uncertainty surrounding the implementation of tariffs on imported autos and auto parts. However, job gains have been steady and wage growth has been accelerating in recent months, which are both net positives for auto sales.

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 the auto industry is 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 and continuing to increase interest rates. 

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