May is traditionally one of the strongest months of the year and often sets the pace for summer sales. In today’s episode of Inside Automotive, we’re looking at May Sales and the pricing forecast with Tyson Jominy, the Vice President of Data and Analytics at J.D. Power.
Key Takeaways
1. May is a pivotal month for car sales, often setting the pace for the summer selling season. This year, Jominy expects sales to increase by about 3% compared to last year, with the Seasonally Adjusted Annual Rate (SAR) reaching 16.1 million. This is a significant milestone as it marks the first time the SAR has exceeded 16 million since the pandemic recovery began. This indicates a positive trend for the automotive market, although it remains below the pre-pandemic peak of 17.4 million. This uptick in sales is promising for the industry’s overall health and suggests robust consumer demand as we head into the summer.
2. Leasing is making a comeback, with more attractive lease deals drawing consumers back. However, the industry faces a significant challenge starting in Q3 when the market will miss many lessees returning due to the inventory shortages that began three years ago. This shortage will worsen in Q4, potentially impacting the availability of off-lease vehicles, which are a crucial component of the used car market. Dealers should proactively contact previous lessees who have bought out their leases, as these customers may soon be in the market for new vehicles, especially considering their unfamiliarity with long-term vehicle maintenance.
3. According to Jominy, the used car market is experiencing a contraction due to the scarcity of three-year off-lease vehicles. This supply reduction is expected to persist through 2025, leading to higher used car prices despite a general downward trend. In response, dealers need to adapt their strategies, such as increasing efforts in auction lanes and retaining higher mileage trade-ins, to maintain an adequate inventory of used vehicles. The rising average monthly payment for used cars, now exceeding $500, further highlights the necessity for affordable options as new car prices continue to rise.
4. Moreover, the high cost of new vehicles, with an average monthly payment of $727, has stabilized but remains significantly higher than pre-pandemic levels. This cost pressure is compounded by rising interest rates, though there is some optimism that rates will decline in the year’s second half. Additionally, the upcoming presidential election could uniquely impact the automotive market, particularly regarding policies on EVs and electrification. While typically, elections do not significantly alter automotive sales, the current political climate might influence consumer and industry trends more than usual.
5. EVs and luxury cars are experiencing distinct market trends. EV sales are approaching 9% of the total market, with a strong presence in coastal regions. However, the market is recalibrating as automakers and consumers adjust to the rapid adoption pace. Luxury vehicle sales, excluding Tesla, are strong and expected to grow as brands like Lexus and Mercedes recover their inventory levels. Conversely, sedans are seeing a resurgence due to their affordability compared to SUVs, with around 20% of the market now opting for sedans, highlighting a significant shift in consumer preferences towards more budget-friendly options.
"May sales are expected to be up about 3% compared to last year, with the Seasonally Adjusted Annual Rate (SAR) reaching 16.1 million—a significant milestone as it is the first time the SAR has exceeded 16 million since the recovery began." - Tyson Jominy
