New car sales expected to fall 20.9% in May as supply remains low

By Matt McFarland, CNN Business

Retail sales of new cars are expected to fall 20.9% this month from the same period last year, amid vehicle shortages and sky-high prices, according to automotive research firms JD Power and LMC Automotive.

The forecast is partly due to continued supply chain disruption and resulting tight inventories. This is yet another pressure on American consumers. The Commerce Department said Tuesday that new home sales fell 26.9% in April from a year earlier. The S&P 500 index has fallen 17.5% this year amid record inflation, rising interest rates and supply chain shortages.

New vehicle inventory remains extremely tight, with retail inventory below one million vehicles for the twelfth consecutive month.

“The pace of industry sales is driven by the number of units shipped to retailers during the month, and demand far outstrips supply,” said Thomas King, president of data and analytics division. analysis at JD Power, in a press release. “Record transaction prices are the result.”

Prices for new vehicles have reached near record highs. The average transaction cost for a new vehicle in May is expected to reach $44,832, the third highest level on record, and a 15.7% increase from a year ago. The record of $45,247 was set in December 2021.

High prices have been a boon for car dealers, who have enjoyed record profit margins. Usually, new car sales have low margins for dealerships, but that has changed as there has been a shortage of available vehicles since the covid-19 pandemic. According to JD Power and LMC Automotive, profit gains from higher vehicle costs more than offset lower sales volumes.

Buyers are still expected to spend $45.4 billion on new cars and trucks, down $8.3 billion from May 2021. Fleet sales are expected to rise 3.8% in May 2021.

Although production is expected to increase in the second half of 2022, vehicle prices are unlikely to fall, King said.

While factors such as an increase in vehicle supply and higher interest rates will likely cause vehicle price increases to slow, they are “unlikely to lead to declines”, a- he declared.