US market demand is soft this year, but transaction prices have more than held up

US market demand is soft this year, but transaction prices have more than held up

The US vehicle market is trending down in 2019, but transaction prices are nevertheless estimated to have been at record levels in the year so far.

The first half of 2019 is forecast to have delivered the lowest US retail vehicle sales since 2013 according to the analysts at LMC Automotive and JD Power. However, it also said that transaction prices and dealer profitability rose to record levels over the period.

In the month of June US retail sales are projected to reach 1,149,900 units, a 2.9% decrease compared with June 2018. The seasonally adjusted annualised rate (SAAR) for retail sales is projected at to be 13.3m units, down 500,000 from a year ago.

New US vehicle retail sales through the first half of 2019 are projected to reach 6,477,400 units, a 3.3% decrease from 2018.

Total US vehicle sales in June are projected to reach 1,471,900 units, a 1.5% decrease compared with June 2018. The seasonally adjusted annualised rate (SAAR) for total sales is expected to be 17.3m units, down 500,000 from a year ago.

New vehicle total sales through the first half of 2019 are projected to reach 8,396,500 units, a 1.8% decrease from 2018.

Weak sales, 'remarkable' growth in prices

Thomas King, Senior Vice President of the Data and Analytics Division at JD Power said: "While the first half of 2019 is expected to deliver its weakest retail sales since 2013, the growth in prices has been nothing short of remarkable. Average transaction prices set a record during the first half, which has big implications for manufacturer revenues."

New vehicle prices are on pace to reach USD33,346—the highest ever for the first half of the year—and are up nearly 4% (+USD1,158) from last year.

Reduced sales volumes coupled with higher overall prices, means that consumers are anticipated to spend USD216bn on new vehicles through the first half, down just 0.4% from last year. Incentive discipline to start the year has continued through the second quarter. Spending to date through the first half has fallen to USD3,788 per unit, USD130 less than the same period a year ago. Spending on cars is down USD304 to USD3,588, while spending on trucks/SUVs is down USD65 to USD3,871.

"The decline in new sales have been disappointing, but it's important not to overlook the effect of growth in the used-vehicle market," King said. "Used sales at franchised dealers are expected to increase by nearly 9% through the first half. Most significant for retailers is the greater profit opportunity due to higher front-end gross and F&I income earned compared with new vehicles. Overall combined new and used retailer profits through the first half are on pace to reach USD23.4bn, up 3.7% from last year. Shifting away from the traditional focus on volumes, 2019 remains on target to be one of the best years recorded."

Outlook for the year - H2 support from dovish Fed

Jeff Schuster, President, Americas Operations and Global Vehicle Forecasts, LMC Automotive said: "Auto sales are nearing the halfway point for 2019 and despite all of the external noise, the beat goes on! A much more dovish Fed is under pressure and is now expected to make a series of interest rate cuts. This will provide support for auto sales in the second half of the year and help offset rising vehicle prices and the current level of incentives. Trucks overall are expected to remain strong on further SUV growth, but the pickup war is heating up. We expect pickup share to reach 17.8% in 2019, a percentage point increase from 2018."

LMC's forecast for 2019 total light vehicle sales is holding at 16.9m units, a decline of 2.1% from 2018. The retail light vehicle sales forecast is also stable with volume at 13.5m units, a decline of 3.1% from 2018.

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