American new vehicle industry “exceptionally strong” as inventory swells: J.D. Power

New-vehicle retail sales for November 2022 in the United States are expected to be relatively flat when compared with November 2021, according to a joint forecast from J.D. Power and LMC Automotive. But this unexciting trajectory disguises the fact that the industry is in a very strong position, and likely to remain strong for many months ahead, according to Thomas King, president of the data and analytics division at J.D. Power. Inventories are building, and pent-up demand from the last two years remains a driving force for sales.

J.D. Power projects that total new-vehicle sales for November 2022, including retail and non-retail transactions, will reach 1,102,300 units, a 5.6% increase from November 2021. Comparing the sales volume without adjusting for the number of selling days translates to an increase of 9.9% from 2021.

“November results demonstrate that vehicle production is continuing to improve, with available retail inventory exceeding one million units for a second consecutive month and a larger share of manufacturers’ production being allocated to fleet customers,” said King. “The increased production is enabling a 9.9% increase in total vehicle sales (non-selling day adjusted) for the month of November.”

New-vehicle transaction prices continue to rise but at a slower pace than earlier this year. The average price in November will set a record for the month of $45,872, an increase of 3.1% from a year ago.

“On the retail side, demand continues to exceed supply, as evidenced by continued strength in transaction prices, retailer profits, inventory turn rates and minimal manufacturer discounting. However, as inventories and interest rates rise, these metrics will show signs of either moderation or decline,” said King.

The record transaction prices mean that buyers are on track to spend nearly $42.8 billion on new vehicles this month—the highest level ever for the month of November and a 7.0% increase from November 2021.

“Dealer profits are falling but remain extraordinarily strong. Total retailer profit per unit—inclusive of grosses and finance and insurance income—is on pace to be $4,359, down 15.4% from a year ago, but still more than double 2019 levels. The decline is due primarily to fewer vehicles being sold above MSRP. In November, nearly 41% of new vehicles are being sold above MSRP, which is down from 50% in July 2022.”

Total aggregate retailer profit from new-vehicle sales for the month of November is projected to be down 12.2% from November 2021, reaching $4.1 billion, the second-best November on record.

“Manufacturer discounts remain minimal.  The average incentive spend per vehicle is tracking toward $1,009, a decrease of 35% from a year ago. Incentive spending per vehicle expressed as a percentage of the average vehicle MSRP is trending at 2.2%, down 1.3 percentage points from November 2021, said King.

“Looking at December and into 2023, the dynamics observed in November are expected to persist. Gradual improvements in vehicle availability will lead to improvements in the new-vehicle sales pace, but per-unit prices and profitability will moderate. Rising interest rates and falling used-vehicle values will compound this rebalancing of the industry price-volume equation. However, it is important to recognize that the overall health of the new-vehicle industry is exceptionally strong and will remain so in the coming months.”


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