Analysts Find Car Sales Ride Over Bumps

Consumers are grumpy about rising gas prices and higher interest rates, but so far their mood hasn’t caused them to slow down purchases of cars, which account for about a third of credit union loans.

Cox Automotive said it expects new cars will sell at a seasonally adjusted annual rate of 15.4 million in August, down slightly from July’s SAAR of 15.7 million, but volume will still be 19% greater than a year ago when manufacturers were still struggling with parts shortages.

Used car sales were lagging new car sales early this year, but Chief Economist Jonathan Smoke said Monday that used car sales have also shown strength in recent weeks.

“Used retail sales remain close to their highest level of the year and are up 9% year-over-year and holding flat to the previous week,” Smoke said. “The consumer is keeping the economy on a growth trend.”

Edmunds, a consumer-oriented automotive analysis company based in Santa Monica, Calif., issued a report Monday showing it took an average of 34 days to sell a used car in the second quarter, compared with 39 days in 2019’s second quarter.

Ivan Drury, Edmunds’ director of insights, said a study of sales through the second quarter showed demand for used cars “continued to defy the odds” despite ongoing unfavorable conditions.

“Shoppers are facing interest rates not seen since the Great Recession and inventory challenges have kept prices historically high, but used purchases are continuing to chug along,” Drury said. “A large number of consumers are likely being forced back into the market out of sheer necessity despite their efforts to sit things out over the last few years.”

Other trends found by Edmunds were:

• Used vehicle prices have dipped from record levels but remain historically high. The average transaction price for used vehicles was $29,472 in the second quarter, down 4.6% from the peak of $30,905 a year earlier, but 46% higher than five years earlier.
• Used cars are getting older. Vehicles that were three years old or newer accounted for 49% of the cars on the lot in the second quarter, down from 58% four years earlier. One reason is a dwindling supply from automobiles coming off their leases.
• Higher-mileage vehicles aren’t offering as much financial relief as they used to. Edmunds found used vehicles with 100,000 to 150,000 miles cost 40% more in the second quarter than they did four years earlier. Prices for cars with 150,000 to 200,000 miles cost 28% more.

Meanwhile, Cox Automotive found low-cost financing deals have become scarce. The number of zero-percent APR deals has fallen steadily from a high of 5% in March to 1.6% in August.

For new cars, volume-weighted average interest rates reached 9.48% in August, up 28 basis points from July and 266 bps from a year earlier.

Used rates reached 13.76%, up 15 bps from July and up 277 basis points from a year earlier, but still lower than their peak of about 14% in late March.

Cox Automotive also found supplies are better than they were in 2021 and 2022, but still lag pre-pandemic levels.

New car supplies have remained just under 60 days all year. That’s better than the supply of just under 40 days in August 2022, but still below the nearly 80-day supply in August 2019.

In June, there was about a 50-day supply of used cars — matching the level a year earlier. But the supply fell by about eight days over the next five weeks and remained at just above 40 days last week. Supplies were also about two days fewer than at the same week in 2019.

Smoke attributed the recent decline in days’ supply of used cars to sales that “continue to run at much higher levels than we’ve seen all year.” However, wholesale prices for used cars have been rising and the trend might carry through to the retail market.

“If we do see used vehicle prices moving higher in September, the market might be headed toward a back-and-forth cycle of up-and-down prices with supply tightening in the vehicle market but the economy still chugging along at full employment,” Smoke said.