Still A Seller’s Market For Autos, Despite High Prices, High Interest

Cars and trucks are still selling like hotcakes, despite everything — despite a UAW strike, despite high interest rates, high sticker prices, and a lot of grumbling about the U.S. economy in general.

In October, U.S. auto sales are expected to reach about 1.2 million units, an increase of 6.6% vs. October 2022, according to a forecast from J.D. Power and GlobalData.

It’s true that as new-vehicle inventory has increased, the average new-vehicle transaction price is down from recent peaks this year, but prices are still unusually high. That’s because inventory is still unusually low, despite recent improvement.

The average dealer gross profit per vehicle is an estimated $3,182 in October, said J.D. Power and GlobalData. That amount includes the gross profit on the new-vehicle sale, plus profits from finance and insurance.

That’s down 28.9% vs. a year ago, the forecast said, but more than double October 2019, before the COVID-19 pandemic and a long-lasting shortage of computer chips.

An estimated 25.7% of new-vehicle sales will be above manufacturer’s suggested retail price in October, the forecast said. That’s an astronomical number by historical standards, but it’s down from 41.3% a year ago.

Another indication of high demand and relatively thin inventory is that some of the nation’s biggest auto retailers report a substantial share of their new-vehicle inventory arrives pre-sold, to a waiting customer.

Daryl Kenningham, president and CEO of Houston-based Group 1 Automotive, said in an earnings conference call on Oct. 25 that 33% of the group’s new-vehicle sales in the United States were pre-sold in the third quarter, down from 40% in the prior quarter.

Nevertheless, Group 1 doesn’t expect any sudden drop in prices or in demand. “It’s a gradual decline from where it’s been, but we don’t see any cliffs out there at all,” Kenningham said.

Roger Penske, chair and CEO of Penske Automotive Group, said in a separate earnings call Oct. 25 that demand remains strong and availability is improving.

“However, we expect supply to remain below historical averages during 2023 for most of the brands that we represent. We continue to take forward orders and continue to see strong vehicle demand,” Penske said.