Americans are still not in a bearish mood: Q2 new vehicle sales up 17.5% year-over-year as inventories normalize after a slump

Incentives have increased but are still below normal. The average transaction price and average listing price are stuck at ridiculous levels.

By wolf richter For wolf street,

Automakers have now reported deliveries for June and/or the second quarter. They were very high. The inventory shortages plaguing the industry in 2021 and 2022 are easing for most brands, and some brands have become overstocked. Automakers are once again piling up incentives and offering special financing rates. Adios disgusting addendum stickers. Dealers are making deals, and so Americans are flocking to dealerships once again. Sales compared to the same period a year ago:

  • General Motors, Q2: +19%
  • Ford, Q2: +11%
  • Toyota, June +14.9%
  • FCA (part of Stellantis), Q2: +6%
  • Hyundai, Q2: +14%
  • Honda, Q2: +45%
  • Kia, June: +8.3%; First half: +18%.

Total sales of new cars, SUVs, vans and pickup trucks in the second quarter by all automakers rose 17.5% year-on-year to 4.10 million vehicles, the most since the second quarter of 2021. These are deliveries to end users, either by dealers. Large fleets, such as rental fleets, directly by their customers, or vehicle manufacturers.

Stockpiling of new vehicles is becoming normal: overstock here, out of stock there.

Starting in early 2021, chip shortages and mass production cuts led to a shortage of new vehicle inventory across the industry, causing sales to plummet. Those shortages are shrinking, and dealers are restocking, and customers are once again coming to them to buy.

Inventories of new vehicles on dealer lots or in transit rose to 1.96 million vehicles as of the beginning of June, up 73% year-over-year, the most since April 2021, and out-of-stock in mid is twice as long as the period. And at the end of 2021, according to statistics Cox Automotive,

By comparison, in 2019, new vehicle inventories averaged 3.66 million vehicles. But at that time the dealers had excess stock:

The supply of days has become almost “healthy”. The supply increased to 55 days in early June. Over the past six months, supply has been in a 54-59-day range, with 60 days considered “healthy”. By comparison, in 2019, supplies averaged 90 days when the industry was overstocked (which made it a good time to buy vehicles amid heavy incentives and discounts).

Some brands are running out of vehicles: Jeep started June with over 150 days of supply, followed by Infiniti (119 days). Ram, Jaguar, Chrysler, Buick and Lincoln all had more than 100 days’ supply, according to Cox Automotive. Mini and Dodge had over 90 days’ supply.

Supply for many brands was normal in early June, including about 70 days for Ford, 60 days for GMC, 58 days for Nissan, 50 days for Chevrolet.

But supply was still very short for some brands. Toyota, Honda, Lexus and Kia had 30 days or less of supply. Toyota’s Corolla and Highlander and Honda’s Civic supplies were the lowest at just 21 days, essentially out-of-stock levels.

Incentives increased, prices stuck.

Incentives are coming back. Average incentive spending per vehicle by automakers rose to $1,798 in June, nearly double the amount from a year ago, according to J.D. Power, with relatively little incentive on leases.

Promotional spending as a percentage of MSRP increased to 3.9% in June. But in 2019, when the industry was overstocked, incentive spending reached 10% of MSRP.

Average Transaction Value (ATP) was almost unchanged year-to-date in June at around $46,000. The chart below shows December (seasonal highs) and June.

Part of ATP’s absurd growth in 2021 and 2022 will come from automakers adding higher-end models and trim packages to make up for volume losses due to lower dollar sales (revenue). It was because of prioritization. , This change in mix is ​​now coming back, which lowers ATP. In addition, the large incentive expenditure also reduces ATP.

average new vehicle listing price In May, at $47,172, it was up 4% year-over-year, with a slight decline in recent months (the decline earlier this year was seasonal).

Suppressed demand could dampen those recession hopes.

In the seven quarters that the chip shortage affected vehicle inventories and sales (from the second quarter of 2021 to the first quarter of 2023), automakers sold 24.1 million vehicles. But in the seven-quarter period just before the pandemic, automakers sold 30.1 million vehicles.

So retail customers and fleets (especially rental fleets!) bought 6 million fewer vehicles in this seven-quarter period than in the same period before the pandemic. Instead of buying a new vehicle, they kept the one they had for the time being. And this creates pent-up demand in future years. We see this after every deep recession in the auto industry. It’s a slow process, but it happens.

Many people and companies have waited a long time to buy a new vehicle. Frustrated by worn-out appendix stickers, dealers out of stock, and long waiting lists, consumers and businesses went on a buyers’ strike. They had the money, and the rates were low, but they didn’t buy because either there was nothing to buy, or it was a scam.

The situation is now returning to normal and buyers are coming out of the woodwork. This will be the first time that the US economy is widely expected to enter a recession. We’ve been watching and waiting for this for over a year While pent-up demand for new vehicles is boosting sales, it’s another factor that contradicts the bearish outlook and could dampen those bearish expectations.

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