May’s new auto sales are defying even Cox Automotive’s initial expectations. It looks like the release of pent-up demand due to an increase in inventory is a significant culprit. Also, some automakers are reporting year-over-year gains. Nevertheless, while May seems to be a stand-out compared to last year, there is a bit of a drop compared to April.
Here’s a quick look at May’s auto sales and some insight into why we could see the numbers we are.
Year-Over-Year Growth is on the Rise
According to Cox Automotive, it originally predicted that year-over-year auto sales would be at 20.3%, but updated projections show that the growth rate could be higher than this. Annual new vehicle sales are slated to finish around 14.9 million units, a marked increase from last year’s 12.6 million.
Much of this is likely due to inventory returning to the dealer lot and consumers who may not have been able to get the new cars they desired being able to. However, while May 2023 shows more robust numbers than May 2022, month-over-month numbers were a bit more sluggish. Compared to April, sales volume is projected to decrease by 1.1%.
Compact SUVs and Crossovers Might Be the Sweet Spot
Another notable takeaway from early May sales estimates are the types of vehicles that consumers are still flocking to. While there has continued to be interest in larger vehicles, the tide could be changing. Cox Automotive included car-type sales projections. Year-over-year, compact SUVs and crossovers, and compact cars are slated to see the most significant increase (35.6% and 26.2%, respectively). But month-over-month, all vehicle types are estimated to see a drop.
But, both full-size pick-up trucks and mid-size SUVs are estimated to see the largest declines at 2.6% and 2.1%, respectively. Compact SUVs and crossovers are predicted to see the most minor drop in sales at 0.7%. Considering that vehicle affordability is still an issue (which we’ll cover more below), larger vehicles likely commanding higher price tags could slightly cool demand for these items.
Early Indicators Show Many Automakers Had Good Showings
Mazda and many domestic automakers experienced a strong sales month, according to Cox Automotive, even though they may not have matched or exceeded the industry average. While the numbers are still being tabulated for several automakers, early indications reveal that many had a solid showing for May. Here are some of the auto sales numbers that have been released.
Kia publicized its tenth straight occurrence of year-over-year monthly sales increases. Their May sales of 71,497 units capped off its second-highest monthly sales totals in company history. Sales rose 23% compared to May 2022.
Honda’s numbers were even more impressive. Finally, being able to take advantage of their increased inventory, the automaker reported a 58.2% month-over-month sales increase and a 19.5% year-over-year rise. Hyundai also saw continued new auto sales success. They experienced an 18% year-over-year increase, and many models, including the Elantra HEV and Santa Fe HEV, saw the best-ever total sales in May.
Can Pent Up Demand Offset Lagging Affordability?
We’re likely seeing pent-up demand recover from a long time of decreased vehicle inventory. Nevertheless, affordability could be threatening this rebound. The month-over-month 1.1% drop from April could indicate that specific customer segments are dropping out of the market.
According to Cox Automotive, the average new vehicle loan rate is around 9%, and the typical monthly payment is higher than $700 on average. Individuals shopping on a budget could be gradually leaving the new car market. While pent-up demand and fleet sales may likely carry some of the sales in the interim, it remains to be seen how much affordability will continue to play a role as we move into the rest of 2023.
