New car sales to surge 15.6% in May with higher prices still in play, report says
Good news for automakers and dealers may be bad news for consumers.
Auto research firm J.D. Power is projecting a huge bump in new car sales for May, which could be good news for automakers, but bad news for customers with higher prices still in play.
J.D. Power, working with its partner LMC Automotive, projects total new-vehicle sales for May, including retail and non-retail transactions (such as fleet sales), to reach 1,337,700 vehicles, a 15.6% jump from a year ago. The report noted this May has 25 selling days, one more than May 2022, and without adjusting for the number of selling days, data show a 20.4% increase from 2022.
Backing out non-retail sales, the report projects that sales at the retail level were up 9.6% in May, and without adjusting for the number of selling days, the figure climbs to 14.2% versus a year ago.
“The industry is positioned for another strong month in May as retail sales are estimated to surge 9.6% from a year ago,” J.D. Power President of Data Analytics Thomas King said in a statement. “This positive performance is complemented by a projected 0.7% increase in average transaction prices. As a result, it is anticipated that consumers will spend nearly $47 billion on the purchase of new vehicles in May, showcasing a significant 13% growth from a year ago.”
The average transaction price rose 0.7% year over year to $45,838, a new record for the month of May. The $47 billion spent on new cars this month is the second highest total ever for the month of May.
A big part of the reason why sales jumped significantly this month has to do with availability and inventory at the dealer level. The report projects retail inventory levels in May this year hit 1.3 million vehicles, a massive increase of 48% from a year ago.
On the flip side, dealer profits are smaller compared to a year ago, when dealers were selling more vehicles for prices way above MSRP, though May 2023’s performance is still much higher than pre-pandemic levels.
“The total retailer profit per unit — which includes grosses and finance and insurance income — is expected to reach $3,732. While this is 25.8% lower than a year ago, it is still more than double the amount in May 2019,” King said.
Turning back to the consumer, while an increase of incentives at the dealer level this month may continue to be a positive tailwind for buyers, it appears to not have done much to blunt higher monthly payments for those who finance new car purchases.
Elevated pricing coupled with interest rate increases continues to inflate monthly loan payments, the report found. “The average monthly finance payment in May is on pace to be $736, up $48 from May 2022. That translates to a 7.0% increase in monthly payments from a year ago,” King says.
A small bright spot for buyers is the electric vehicle outlook. Though tax credit eligibility rules have reduced the number of vehicles eligible for the credit, the EV lease provisions of the federal tax credit allow all EVs, regardless of origin and buyer income level, to qualify.
“Accordingly, lease affordability has surpassed purchase affordability in the J.D. Power EV Index, suggesting that EV lease volumes will surge during the next several months,” said Elizabeth Krear, J.D. Power EV practice vice president, said in the report.
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Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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