SHOPSMART AUTOS – CUSTOMER INFORMATION – OCTOBER 31, 2021- PT.1
Inventory Constraints Still Inhibiting New-Vehicle Sales as Prices and Profits Increase to Record Highs
-New-vehicle retail sales for the month of October 2021 are expected to decline when compared with October 2020 and October 2019, according to a joint forecast from J.D. Power and LMC Automotive. Retail sales of new vehicles this month are expected to reach 943,500 units, a 17.4% decrease compared with October 2020, and a 15.4% decrease compared with October 2019 when adjusted for selling days. October 2021 has one fewer selling day than October 2020 but the same number of selling days as October 2019. Comparing the same sales volume without adjusting for the number of selling days translates to a decrease of 20.4% from 2020 and a 15.4% decrease from 2019.
The Total Sales Forecast
Total new-vehicle sales for October 2021, including retail and non-retail transactions, are projected to reach 1,085,500 units, a 17.2% decrease from October 2020 and a 18.8% decrease from October 2019. Comparing the same sales volume without adjusting for the number of selling days translates to a decrease of 20.1% from 2020 and a decrease of 18.8% from 2019. The seasonally adjusted annualized rate (SAAR) for total new-vehicle sales is expected to be 13.5 million units, down 2.9 million units from 2020 and down 3.3 million units from 2019.
The Takeaways
Thomas King, president of the data and analytics division at J.D. Power
: “October results demonstrate that new-vehicle sales are still being constrained by how many vehicles are delivered to dealerships each month. However, strong consumer demand and a lack of inventory is leading to record transaction prices and profit for each unit sold. Month-end inventory of vehicles on dealer lots is expected to remain below one million for the third consecutive month. “When new vehicles are delivered to dealerships they are sold swiftly. Retailers continue to sell a large proportion of vehicles almost as soon as they arrive in inventory. For the month of October 2021, nearly 54% of vehicles will be sold within 10 days of arriving at a dealership.” This month, the average number of days a new vehicle sits on a dealer lot before being sold is on pace to fall to a record low of 20 days, down from 49 days a year ago and down from 23 days in September 2021. “Strong demand and insufficient inventory continue to drive prices—and profit per unit sold—to record levels. In October 2021, average transaction prices are expected reach a record high of $43,999, the fifth consecutive month above $40,000. For context, average transaction prices are trending to be 19.3% higher than in October 2020 when prices hit $36,887. This is partially due to the near evaporation of manufacturer incentives. The average manufacturer incentive per vehicle is on pace to be a record low of $1,628, a decrease of $1,871 from a year ago. Expressed as a percentage of the average vehicle MSRP, incentives for October 2021 are trending toward a record low of 3.7%, down nearly 4.7 percentage points from a year ago and the first time on record below 4.0%.” Further assisting the rise in prices is the shift from cars to more expensive trucks and SUVs, which are projected to account for more than 80% of sales in October, up 4.6 percentage points from last year and an all-time record for truck/SUV share of retail sales. Despite retail volumes in October being down significantly, the higher prices mean that consumers are on track to spend $41.5 billion on new vehicles this month, the second highest on record for the month of October. Total retailer profit per unit—inclusive of grosses and finance & insurance income—is on pace to reach a record high of $5,129, an increase of $2,937 from a year ago and the first time above $5,000. Grosses have been above $4,000 for four consecutive months. Despite the drop in sales volume, this record profit per unit sold will result in October 2021 being the most profitable October ever for retailers. Total aggregate retailer profits from new-vehicle sales are projected to be up 213% from October 2019, reaching $4.8 billion, the highest ever for the month of October, and equal to the record set for any month. Record prices also are being supported by exceptionally strong used-vehicle prices, as new-vehicle buyers benefit from more equity on their trade-in vehicles. The average trade-in value is trending towards $8,738, an increase of $3,598 (70.0%) from a year ago. Also, interest rates are favorable when compared with last year. The average interest rate for loans in October is expected to decrease 49 basis points to 4.04% from a year ago. Even with favorable interest rates and increased trade-in values, the average monthly finance payment is on pace to hit a record high of $664, up $72 from last year.
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