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Pricing power and pent-up demand dominate the 2022 auto retail forecast – Jonathan Banks | J.D. Power

Vehicle pricing and supply have yet to normalize, so what could this mean for the industry in this second quarter and the remainder of the year? Today on Inside Automotive, we’re pleased to welcome Jonathan Banks, Vice President and General Manager for Vehicle Valuations at J.D. Power, to update us on the market and what he expects moving forward.

As inventory availability still challenges the new car market, vehicle prices continue to climb. Geopolitics are also further disrupting the already fragile supply chain, and there are more underlying market variables that signal high prices. However, as predicted, used car prices started moderating early this year, and the influx of cash from tax returns created even more demand, says Banks. 

Inflation is hurting purchasing power, but the strong consumer market is still driving demand. When more consumers start working steady jobs, they need cars. Consumers are paying more, and dealers are paying more, but the overall market is healthy and profitable.

Banks expects a mild pullback on used car valuations over time, but prices for used vehicles are up 37% year-over-year, so car dealers remain profitable nonetheless. Costs are also offset by trade equity, which has gone up to $9,400 average per unit when trading into franchised dealers, a 158% increase since 2020. Barring something catastrophic beyond what the industry is already facing, automotive retail will stay robust, explains Banks. 

While analysts disagree on whether or not the economy is on the verge of a recession, Banks says that a recession should not be too taxing on the industry unless it impacts job growth. It’s safe to say that pent-up demand will be around for the next two years, and Banks expects inventory availability to improve sooner.

Affordability is an issue the industry has grappled with even before COVID-19. Younger generations and first-time buyers are gravitating to more affordable sedan options. Leasing has become more expensive as well. Banks explains that there is about one more year until normal lease maturity levels. Residual values are based on today’s MSRP; however, at almost every lease return, customers or car dealers will buy those vehicles.

For more great insight from J.D. Power’s Jonathan Banks, check out the complete interview above.


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