U.S. new-vehicle retail sales for May are expected to reach 1,226,800 units — a 3.1 per cent decrease from the same period in 2018, according to a forecast by J.D. Power and LMC Automotive.
They also anticipate the seasonally adjusted annualized rate (SAAR) for retail sales to fall around 13.5 million units, which is 200,000 units less than a year ago. May is forecasted to become the fifth consecutive month in 2019 to experience a sales decline.
“May is one of the highest volume months of the year and its performance typically indicates how the year will play out,” said Thomas King, Senior Vice President of the Data and Analytics Division at J.D. Power. “The expected sales decline in May, coupled with weak sales year-to-date has left the industry with rising inventories of unsold vehicles.”
He said OEMs responded to this issue by offering bigger discounts to take advantage of the busy Memorial Day weekend. In 2018, more than 238,000 vehicles were sold over this holiday period, equivalent to more than 2 per cent of full-year retail sales.
The total number of sales in May are expected to reach 1,558,800 units — down 2.1 per cent year-over-year from 2018. And the seasonally adjusted annualized rate (SAAR) will likely fall around 17.0 million units, a decrease of 200,000 YOY.
According to J.D. Power, the number of new vehicles sitting on dealer lots is rising. In May they remained there for an average of 74 days, which is significant. The last time the average reached such a high level in May was in 2009, when dealers were dealing with the effects of The Great Recession. Furthermore, 29 per cent of the vehicles sold in May 2019 sat on the lot for at least 90 days.
Manufacturers are offering larger discounts as a result, and incentive spending per unit for the month is up $25 YOY from 2018. “Despite the increase in discounts, the industry continues to exhibit reasonable incentive discipline,” said King. “Spending as a percentage of MSRP remains below the 10 per cent threshold at 9.1 per cent.”
A sales weakness at lower price points, such as retail sales of vehicles below $30,000, has helped average transaction prices increase. Currently, they continue to rise, with new-vehicle prices anticipated to reach $33,457 — the highest price ever for the month of May.
On the used car side, J.D. Power said the market remains strong with sales by franchised dealers up 5.9 per cent month-to-date from 2018. This is helping many dealers to offset the challenges faced with new vehicles.
“May reflects a mixed performance for the industry. For manufacturers, despite lower volumes, higher prices are delivering an increase in net revenue,” said King. “For dealers, strength in the used market is offsetting weakness in new. Looking forward, elevated inventory levels remain an issue that will only be corrected through production cuts or higher incentives.”
He adds that there will be considerable pressure to increase discounts on 2019 model-year vehicles as the 2020 ones make their way to dealer lots.
