Analysts Predict Drop in Q2 Auto Sales

Cox Automotive and Edmunds on Tuesday forecast a steep drop in second-quarter sales of new automobiles, largely because of the effect of continuing limited supplies.

Edmunds, a car-buying analytics company based in Santa Monica, Calif., forecasted that second-quarter sales will come in at 3.50 million vehicles, down 21% from a year earlier. The Atlanta-based Cox Automotive forecasted a 19% drop to 3.57 million.

For the year, Cox Automotive is forecasting sales of 14.4 million — its second downgrade of the 12-month forecast. It forecasted 15.3 million in March and 16.0 million in January. Cox Automotive forecast used car sales will be 37.1 million this year, down 8.6% from 2021. In March it forecast 2022 sales would be 39.3 million, down 3.2% from last year.

Compared with the first quarter, Cox Automotive second-quarter new car sales will be down 3% and Edmunds forecast a 5.1% gain. Either way, the change fell well short of the seasonal winter-to-spring surge, which Edmunds said was an average of 10% from 2017 to 2019.

Jessica Caldwell, Edmunds’ executive director of insights, said its analysts expect the supply constraints to linger and good deals for consumers to be scarce for the rest of the year.

“Elevated gas prices and rising interest rates only intensified the struggles faced by car shoppers amid ongoing inventory shortages in the second quarter,” Caldwell said. “The majority of consumers who are purchasing vehicles in these conditions are either in a financial position where money is less of a consideration or are doing so out of absolute necessity.”

Caldwell said consumers shouldn’t be looking for the traditional end-of-summer and end-of-model-year sales events.

“Dealers likely won’t be rolling out the barbecue grills or wacky waving tube men to promote discounts this year because they won’t have a surplus of inventory to clear.”

Consumers in this market should be calculating when they need to buy a car instead of holding out for big sales events, she said.

“Looking ahead, a recovery in vehicle production in 2022 seems highly unlikely at this point, but a bright spot for the industry is that profit margins are staying high and pent-up consumer demand will only continue to build as shortages continue.”

Cox Automotive forecast demand for vehicles to remain above available supply – keeping the seller’s market alive in 2022. It said the biggest threats to a 2022 sales recovery are:

• The persisting computer chip shortage. It said second-half automobile production “must be much better” to meet its 14.4 million forecast for the full year. “Re-stocking dealer lots will be slow,” it said.
• New variants of COVID-19 could disrupt the economy and supply chains.
• Higher interest rates, impacting affordability and threatening the economy and employment.
• Russia’s invasion of Ukraine, affecting gasoline prices, raw materials and supply chains.

Demand has remained strong and prices high. Cox Automotive said the average transaction price for a new car in May was $47,148, 33.2% higher than a year earlier. Just 16% of new cars in 2022 sold for less than $30,000, compared with 55% in 2012.

Yet, at least through April, CUNA’s latest Monthly Credit Union Estimates showed strong growth in auto loans. Credit unions held $150.7 billion in new car loans in April, up 5.4% from a year earlier, while used loans rose 15.2% to $283.8 billion.