March was deceptively positive. The month had a slightly stronger showing than analysts originally predicted. While most automakers floundered, the month ended with a SAAR of 17.45 million units.
The story of April is likely to be less favorable. Cox Analysts are predicting a one percent year over year increase, and an estimate of 1.37 million units sold. This finding would put the SAAR to 16.9 million units, a significant dip when compared to March’s rally of 17.45 million. While April is likely to experience a moderate increase, or a slight decrease in sales when compared to last year, it is worth digging deeper into the numbers.
What is bringing about this sales shift, and how is it impacting the overall market? Read on for our takeaways from April’s auto sales.
The Winners and Losers of April
When it comes to April, the trophies belong to Subaru and Nissan. Subaru reported a year-over-year increase of 7.7 percent, making this the best April in the history of the company’s existence. Regarding Nissan, the automaker saw months of decline but finally got back on better footing with a nine percent increase in sales. While these two brands were the bright spots of April, most automakers experienced declines.
Toyota saw a 4.4 percent decrease in sales. Demand was high for Toyota’s light trucks; however, the automaker’s compact cars and sedans dragged down the company’s sales percentage. FCA sales decreased by six percent as most of the company’s brands experienced diminished sales numbers. Additionally, Honda also saw year-over-year decreases of 0.6 percent. General Motors and Ford now only share quarterly reports. The former saw a first-quarter sales drop of seven percent while Ford is estimated to have seen a 6.8 percent decrease compared to April 2018.
Prices and Interest Rates Continue to Climb
According to Edmunds, the average price of a new vehicle is expected to rise to $36,718 in April. This pricing is the highest so far for 2019. In addition to pricing, April also sees another month of interest rates above six percent. The APR on new vehicles for this past month is estimated to be 6.28 percent, an alarming climb when compared to last year’s 5.58 percent.
Edmunds analyst also revealed that the rising transaction prices and interest rates have also led to an increase in monthly payments. For new vehicles, the average monthly note is said to be $553, while used cars are $411. While all may seem lost for consumers looking for a deal, the cooling demand could offer a silver lining to those buying cars toward the middle of this year.
Jessica Caldwell, Edmunds executive director of industry analysis had this to say about the response automakers may have for this downward sales trend:
“Slower April sales didn’t do much to eat into the industry’s mounting inventory levels, so we might start to see these manufacturers and dealers begin to loosen the reigns on incentives closer to Memorial Day weekend in an attempt to rekindle demand.”
Younger Demographics are Feeling the Financial Strain
While everyone is feeling the rising costs of purchasing a new vehicle, there is one group being hit the hardest. Sales are expected to fall by eight percent among car buyers between the ages of 16 and 35. When compared to a four percent decrease of buyers above 55 years of age, this is a considerable drop.
This situation is mostly due to the increase in transaction prices and interest rates; however, the diminishing opportunity for incentives and zero percent finance offers have also played a significant role. Incentive spending is now $3,408 per unit, a $300 decrease when compared to the same time last year. Concerning zero percent finance offers, only 3.20 percent of transactions in April included this incentive. This number is almost fifty percent less than the rate of zero percent finance offers provided last year.
High-End Vehicles and Large Cars are Keeping Everything Afloat
The decrease in sales is not extending to all car types. Luxury vehicles and larger cars are still resonating with customers. For example, according to Reuters, sales of vehicles priced below $20,000 decreased by 25 percent when compared to last year.
On the other hand, cars that cost over $40,000 experienced demand increases of seven percent. This doesn’t seem to be an isolated trend as the entire first quarter of 2019 saw a decrease in demand for cars under $20,000 by 14 percent. This upswing in high-end car sales almost follows the trend of trucks and larger cars outselling compact vehicles.
Again, there were a few positive auto sale happenings in April. The success of Subaru, Nissan, light trucks, and SUVs may be enough to propel April 2019 to a slightly positive showing. Also, with overall demand decreasing, automakers may be looking to offer some incentives to clean out their inventories throughout May, June, and July.
However, one cannot ignore the downward trend of demand, especially concerning smaller and more affordable cars. If transaction prices and interest rates continue to rise, even the demand for high-end vehicles and trucks may not be enough to meet year-end industry goals.