Higher Prices, Rates Putting Brakes on Car Sales

Cox Automotive reported Thursday that used car sales skidded in August, following a report early this month that new car sales were flat.

This time, it’s not just inventory. Cox Automotive said the slowdown is beginning to reflect the higher payments caused by both rising prices and rising interest rates.

Cox Automotive estimated that total used-vehicle sales in August were near 3.1 million units, down 11.4% from August 2021. The seasonally adjusted annual rate (SAAR), or sales pace, is estimated to be near 36.2 million, down from last August’s 40.8 million level and below July’s revised 38.3 million pace.

“Higher prices and higher interest rates are slowing sales in the used market,” Cox Automotive Senior Economist Charles Chesbrough said. “Sales of used vehicles will face increasing headwinds throughout 2022 as rising interest rates continue slow economic activity.”

Although credit union auto loan production figures were not available, balances reported by CUNA showed credit unions held about twice as much in used car loans as they did in new cars. Together they accounted for about a third of total credit union loans.

CUNA’s latest data was for July, which showed used car loans were $300.8 billion on July 31, up 18.5% from a year earlier and up 1.4%.from June. New car loans grew 17.3% to $167.7 billion from a year earlier and rose 1.9% from the previous month.

Cox reported that retail used-vehicle sales, which excludes private-party sales, ticked down to 19.1 million in August from July’s revised 20.2 million level. They were down 11.4% from a year ago.

Year to date, the total used market is currently on pace to finish the year down more than 12% from the 40.6 million recorded in 2021.

The U.S. Bureau of Economic Analysis reported Sept. 2 that the SAAR for new cars and light trucks was 13.2 million in August, down from 13.3 million in July and up from 13.1 million in August 2021.

Cox Automotive reported Thursday that the U.S. supply of available unsold new vehicles stood at 1.23 million units at the end of August, up 31% from a year earlier. In mid-2021, global computer chip shortage began limiting production.

“Available supply is at its highest level in our data since June 2021,” Chesbrough said. “Still, it is far below historical levels. Production just cannot catch up to demand yet.”

Cox Automotive also reported Thursday that new-vehicle affordability declined again in August as new-vehicle prices set new records and auto loan rates reached a more-than-10-year high.

The average transaction price for new cars set another record in August: $48,301, up $222, or 0.5%, from July, and up $4,712, or 10.8%, from August 2021.

Cox Automotive said it expects prices to remain elevated due to continued high demand, low inventory and record low incentives. In addition, luxury vehicles have accounted for a record 18% of new vehicle sales as automakers continue to prioritize available computer chips to high-end, high-margin models instead of entry-level vehicles.

Incentives decreased slightly in August versus July and remain low, at only 2.3% of the average transaction price. A year ago, incentives averaged 5.5% of prices paid.

Cox Automotive estimated the more than half of buyers will need to devote 42.6 weeks of their pay to buy the average new vehicle in August, up from a median of 42.2 weeks in July and up 14% from a year earlier.

While median income grew 0.4% from July to August, all other factors moved against affordability. Besides higher prices and lower incentives, interest rates also rose by an average of 37 basis points.

As a result of these moves, the estimated typical monthly payment increased 1.4% to $743.