High transaction prices, supply chain woes stifle July auto sales

Cox Automotive isn’t alone in their projection, as both J.D. Power and LMC Automotive estimate that July will see a 5.7% year-over-year auto sales volume decrease. What’s continuing to lead to this downward trend, and how are automakers fairing? Keep reading for insights. 

The SAAR is likely still lagging 

Cox Automotive reported that the seasonally adjusted rate (SAAR) may see a bit of a boost compared to June 2022. However, it will still likely be lower than last year (13.2 million units vs. 14.7 million). Even though transaction prices are high, supply chain woes are still leading to July being the ninth consecutive month of retail inventory closing below 900,000 units, according to Thomas King, president of the data and analytics division at J.D. Power. 

Smaller cars are likely to win out 

High gas prices may be taking a toll on drivers and impacting their car selections. Cox Automotive’s projections revealed that compact cars are likely the only vehicle types that’ll see a month-over-month rise, with an estimated sales increase of 2.2%. Cox projects that all other vehicle categories will see a month-over-month and year-over-year dip. 

Additionally, some green cars are also seeing an uptick in purchases. According to The Detroit Bureau, Hyundai Tucson’s SUV line, including the Tucson hybrid, saw a 24% sales increase. Additionally, the Kia Sportage’s line, including a hybrid model, saw a record July sales month.

Major automakers see drops 

Toyota, Honda, and Subaru all saw year-over-year decreases, at 21.2%, 40.4%, and 17.1%, respectively. Volvo has also seen a significant year-over-year drop in auto sales, with their 21.5% decrease being attributed to supply chain issues. While it’s challenging to pinpoint one reason to account for why sales drops for these popular brands are occurring, it’s likely a collection of problems leading to these results. 

Again, chip shortages continue contributing to lagging inventory numbers that prevent automakers from meeting demand. However, there are additional challenges the automotive industry is facing. Cox Automotive Senior Economist Charlie Chesbrough cited rising interest rates, low consumer sentiment, and waning affordability as some of the reasons new auto sales have decreased. 

Final thoughts 

While industry forecasters project that the second half of 2022 will bring a better supply chain landscape, there are still some lingering issues that automakers may have to manage. Much of this relates to affordability regarding rising gas prices and inflation. In an auto market report released on August 2, 2022, Cox Automotive shared data from Morning Consult that revealed that even though consumer sentiment rose 3.3% in July, it’s dropped 32% since February 2020 — a reminder of the continuing impact of the pandemic on the economy. 

As Americans continue to contend with rising automotive-related prices, the pendulum may swing toward alternative fueling vehicles and compact cars.