Daily Management Review

Despite Average Vehicle Price Reaching Record Levels, Report Expects Higher Consumer Spending


Despite Average Vehicle Price Reaching Record Levels, Report Expects Higher Consumer Spending
According to a forecast developed jointly by J.D. Power and LMC Automotive, there is an expected drop in the sale of new vehicles in the month of July compared to the same period a year ago. The forecast projects that there would be a 2 per cent decrease in retail sales of vehicles in July year on year and reach a total number of 1,178,500 units.
The report also projected a year on year decrease of 1.8 per cent in the total sales in July at 1,397,400 units after adjusting selling days. There would also be no growth in the seasonally adjusted annualized rate (SAAR) for total sales, expected to be 16.7 million units.
"July will be another month of modest sales declines—but with high vehicle expenditures—as the average new vehicle sales price exceeds $33,000, up over $1,400 from July 2018," said Thomas King, Senior Vice President of the Data and Analytics Division at J.D. Power.
The report also noted that consumers are paying more for recently launched SUVs which is driving up the sales price of the vehicles. In addition, companies are also offering attractive rates of interest for the new vehicles so that consumers are able to maintain a certain level of affordability in their monthly payments while buying the more expensive SUVs.
The report also noted that about 52 per cent of all new-vehicle sales was accounted for by the SUV segment that were sold through mid-July which is a record in itself. This growth in the market share of SUVs has been driven by many new brands and model launches in the midsize SUV segment which currently has a market share of 15.8 per cent of all total new vehicle sale and is at a record high. The report also noted that the increased sale of SUVs has come at the expense of a drop in sale and demand for the less-expensive sedans which accounts for about 28 per cent of the total retail sale of ne vehicles. 
The report also forecast that the average price of a new vehicle would touch $33,182 this month which is the highest for the month of July for any year ever. That is an increase of 4 per cent year on year.
Lower interest rates in many markets are prompting to many buyers to purchase new vehicles on financed loans. In July, the average APR for a new vehicle loan was reduced by 50 basis points compared to the same month a year ago, and stood at 5.7 per cent. 
"Despite the continued slow-down in sales, consumers are expected to spend more than $2 billion more on new vehicles than last year," King said. "This is a clear reflection that manufacturers are building the types of vehicles that shoppers want. Consumer expenditures in July of $39 billion represents the highest level for the month since 2017."
Traditionally, for the global auto industry, August is one of the busiest months of the year in terms of sales. The inclusion of an extra weekend compared to last year is expected to inflate the August sales this year, the report noted.