Mid-year US auto sales analysis with NADA’s Chief Economist Patrick Manzi

The National Automobile Dealers Association recently issued its second-quarter economic and auto sales analysis for 2022. Today on Inside Automotive, Patrick Manzi, Chief Economist for NADA, discusses the findings and what they might indicate about the remainder of the year.

Auto sales were strong in the first quarter with a SAAR (seasonally adjusted annual rate) of 14.1 million units. In the second quarter, auto sales dipped slightly due in part to production shutdowns. The SAAR for Q2 came in at 13.4 million units, an 18-19% decrease compared to the first half of 2021. However, Manzi explains that last year, the comparison period was a red-hot second quarter, with many car buyers returning to the showroom after receiving COVID-19 vaccinations. April 2021 is one of the top five auto sales months this century. 

Car dealers nationwide have been experiencing inventory constraints caused by several supply chain disruptions. At the start of 2022, 1.1 million new units were on the ground. At the end of Q2, there were 1.22 million. So, there is a bit more inventory available, but car dealers still are selling vehicles in record time and trying to work through backlogged orders. Manzi says production might pick up in Q3 or Q4 of this year.

More pressure is on the used car market when inventory is short on the new car side. At the end of June, used car prices cooled off, but according to the Manheim Used Vehicle Value Index, prices are still up about 10% year-over-year. Fleet buyers are gobbling up many of the two-three-year-old inventory that comes through auctions. For the remainder of the year, Manzi expects used prices to decrease as inventory accumulates on the new car side. 

They are more significant macro-economic issues impacting US auto sales in the year’s first half. Inflation increased to 9.1% in June, the highest level since 1981. According to Moody’s, the average household is paying an extra $460 per month due to inflation. When prices rise this high, consumers must divert a portion of their income from disposable purchases to necessities. Food, rent, and energy are experiencing the most significant increases. Some consumers are starting to hold back and wait on their auto purchases.

In fact, consumer confidence continued to fall in June, according to The Conference Board’s Consumer Confidence Index®. 

In response to inflation, the Federal Reserve has aggressively raised interest rates, with more hikes coming down the pipeline. Over the past two years, the low-interest rate environment has helped keep monthly payments from increasing as rapidly as transaction prices. However, the low-interest rate environment is disappearing, which will push a segment of consumers out of the market. Interest rates will shift from a tailwind to a headwind regarding vehicle affordability. 

Pre-pandemic, leasing was around 30% of auto sales. Right now, it’s approximately 18%. OEMs have pulled back their incentive spending dramatically. At the end of June, the lowest reported was $918 per copy. The incentive money isn’t there to keep lease payments down relative to finance payments. 

Manzi believes there will be a slight improvement in auto sales volumes in the year’s second half compared to the first half. He also expects a 14.2 million unit SAAR by the end of the year. Unfortunately, inventory and vehicle production has returned as quickly as dealers hoped. However, Manzi is optimistic that production will improve slightly, but likely not enough to outpace 2021 auto sales.