December Sales Will Fall as Auto Industry Sets Record for Transaction Prices, Incentive Spending
The Retail Sales Forecast
New-vehicle retail sales in December are expected to be down from a year ago, according to a forecast developed jointly by J.D. Power and LMC Automotive. Retail sales are projected to reach 1,272,300 units, a 2.8% decrease on a selling day adjusted basis compared with December 2018. Reporting the same numbers without controlling for the number of selling days translates to a decrease of 6.6% vs. last year. (Note: December 2019 contains one less weekend and one less selling day than December 2018.)
New-vehicle retail sales for the 2019 calendar year are projected to reach 13,717,600 a 1.7% decrease compared to 2018.
The Total Sales Forecast
Total sales in December are projected to reach 1,531,500 units, a 2.1% decrease on a selling day adjusted basis compared with December 2018. Reporting the same numbers without controlling for the number of selling days translates to a decrease of 5.9% over last year. The seasonally adjusted annualized rate (SAAR) for total sales is expected to be 16.9 million units, down 500,000 units from a year ago.
New vehicle total sales for the 2019 calendar year are projected to reach 16,998,800, a 1.4% decrease from 2018.
Thomas King, President of the Data & Analytics Division at J.D. Power:
“December’s soft performance closes the year on a down note, but another record for transaction prices reinforces that manufacturers are producing the type of vehicles that consumers want in the market. Record prices, however, have also been accompanied by record incentive levels, which signifies that there is still too much supply relative to overall demand.”
Average transaction prices in December are on pace to set a record of $34,602, up $673 from last year. Growth is being driven by prices of truck/SUVs, which are expected to reach $36,935, an increase of $655 from last year. Prices for cars are up to $27,461, a modest increase of $79.
Concurrently, average incentive spending per unit is on pace to reach a record $4,600, an increase of 6.9% (+$296) from a year ago. The previous high for the industry was set last month at $4,520. Overall spending as a percentage of MSRP also remains close to 11%, the highest level since the recession in 2008. Among the 25 top-selling brands in the industry, all but four are expected to show an increase in overall spending.
“Looking at the entire year, annual retail sales will reach more than 13.7 million units in 2019. This represents the 10th-best retail sales year in history and a modest 232,000-unit decline from last year,” King said. “With transaction prices continuing to show robust growth, consumers will spend a record amount of money on new vehicles in 2019.”
The combination of record prices with overall sales means that consumers will spend $462 billion on new vehicles in 2019. This is up $8.4 billion from last year and marks the first time that expenditures will exceed $460 billion.
Looking ahead to 2020, more than 60 new or refreshed models are expected to be introduced, which should help mitigate further degradation in overall sales.
- The average new-vehicle retail transaction price in December is expected to reach $34,602. The previous high for the industry, $34,239, was set in November 2019.
- Average incentive spending per unit in December is expected to reach $4,600, up from $4,304 last year. The previous record—$4,520—was set in November 2019.
- Incentive spending on cars is expected to be up $227 to $4,197, while spending on truck/SUVs is up $309 to $4,732.
- Consumers are on pace to spend $44 billion on new vehicles in December, down $2.2 billion from December 2018.
- Truck/SUVs account for 73.9% of new-vehicle retail sales through Dec. 15, the highest level ever for the month of December.
- Days to turn, the average number of days a new vehicle sits on a dealer lot before being sold to a retail customer, is 72 days through Dec. 15. This is up five days from a year ago.
- Fleet sales are expected to total 259,200 units, up 1.7% from December 2018. Fleet volume is expected to account for 17% of total light-vehicle sales, up from 16% a year ago.
Outlook for the Year
Jeff Schuster, President, Americas Operations and Global Vehicle Forecasts, LMC Automotive:
“Despite a lot of noise and some uncertainty with light-vehicle sales, 2019 has turned out to be a strong year. Much of that uncertainty has dissipated with USMCA nearly across the finish line, the progress with the China trade deal and an economy that is expected to be supportive. Prospects for 2020 are shaping up to be quite stable, though volume is expected to be a bit lower. Manufacturers will face a lot of pressure to stand out in a crowded market with nearly 60% more redesigned or new entries in 2020 than there were in 2019.”
Looking at 2020, total light-vehicle demand is forecast at 16.8 million units, down 1.4% from 2019 and retail light-vehicle demand is at 13.5 million units, down 1.7% from 2019.
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