There’s a lot of drama going on in the U.S. auto market — like an old Western with gunmen staring motionless and menacingly at each other on a dusty street.
The question is: will anyone back down?
“The market is stuck,” said Tyson Jominy, vice president of data and analytics at J.D. Power. “It’s a standoff right now — between consumers, dealers, automakers and lenders — to see which one is going to blink.”
What was expected to be a robust August — albeit artificially inflated by a holiday weekend that usually falls entirely in September — was instead fairly flat, with an annualized, seasonally adjusted sales rate of just 15.1 million vehicles, according to Cox Automotive and J.D. Power. That’s the second-lowest sales rate so far this year, behind January’s 14.9 million, according to Motor Intelligence.
Seven automakers reported their August sales on Sept. 4 and 5, and all but Volvo reported increases from the previous August. However, the jumps from a year earlier — when Asian automakers in particular were struggling to replenish depleted inventory — were disappointing given expectations, analysts said. Mazda’s August sales rose 37 percent, American Honda rose 25 percent, Ford Motor Co. and Hyundai-Kia rose 13 percent, Subaru’s sales rose 12 percent, while Toyota Motor North America eked out a 1.9 percent gain and Volvo fell 2.1 percent. The automakers will report their third-quarter sales in October.
GlobalData, which also estimated SAAR at 15.1 million, said overall sales were up 6.5% from a year earlier to 1.4 million vehicles, but noted that August had 28 days of sales due to the long holiday — the most of any month this year.
So what’s holding the market back? Analysts cite a variety of possible reasons, from uncertainty over the U.S. election in November to consumers hoping for an early interest rate cut from the Federal Reserve this month to questions about the health of the economy. But the consensus is that something has to give before the market moves one way or the other.
“Signs indicate that U.S. sales are losing steam, and we do not expect any measurable increase in the daily sales rate in the coming months,” Jeff Schuster, vice president of automotive research and analysis at GlobalData, wrote in a Sept. 5 industry report. “Consumers who were displaced from the new-vehicle market during the pandemic are still struggling to manage affordable monthly payments, and many have yet to return.” As a result, GlobalData adjusted its 2024 sales projection down by 200,000 vehicles to 16.4 million.
Affordability remains a key issue, analysts said. The average incentive per vehicle rose nearly 60% from August 2023 to reach $3,035 last month, J.D. Power and GlobalData estimated. That was $18 higher than in July.
The projection was that only 13% of new vehicles would be sold above list price last month, compared to 31% in August 2023.
Meanwhile, the average window-sticker discount share was at 6.2% last month, up 2.3 percentage points from a year earlier — but still well below the 10% level that is often seen as a tipping point for damaging brand values.
“A lot of borrowers are really hanging on by a thread,” said Charlie Chesbrough, senior economist at Cox Automotive, adding that Cox’s most recent estimate of average monthly auto payments was $767 for new vehicles, $566 for used vehicles and $558 for leased vehicles. Those are down slightly from previous peaks as average prices for both new and used vehicles have been trending lower, Chesbrough said.
“This affordability issue is improving a little bit for vehicle buyers, but it still remains at very, very high levels,” he noted. He said high interest rates are a factor and noted that 20 percent of new vehicle purchases are now cash deals, compared with just 12 percent five years ago, before the COVID-19 pandemic began.
“It’s going to be a very challenging second half of the year unless consumers get some relief,” said J.D. Power’s Jominy. He said the industry may need to do a hard reset of its expectations in a scenario that has put many consumers out of the new-vehicle market, including a bigger budget for incentives.
“We need to reshape the way we think about the industry. I mean, a SAAR of 17 million? We’ll never go back there,” Jominy said. “The price [increases] we took measures that allowed us to fundamentally contract the volume in the industry.”