Some new-car buyers show patience amid rising rates

Higher interest rates imposed to quell inflation not only have taken a stiff bite out of auto leasing and allowed inventories to start growing again, but they seem to have at least partially restored to consumers something largely missing for much of the last year: patience.

"You go back six months ago, there was more of a frenzy," said Jeff Buchanan, vice president of sales operations for the Toyota brand. "A customer would come in and buy, even if it wasn't the color they wanted or the equipment they wanted. I think we're seeing customers today are more willing to wait."

Or at least some customers, anyway.

The Hyundai and Kia brands both posted U.S. sales records in November, while Toyota Motor Corp., Subaru, Mazda and Volvo each achieved double-digit percentage gains year over year. Meanwhile, sales at Ford Motor Co. and American Honda dropped in comparison with November 2021, which had one fewer selling day.

LMC Automotive said last week that industry volume was up 10.5 percent in November — including automakers that report results only at the end of each quarter — vs. a period with rampant inventory shortages a year ago, though sales volumes were 6.9 percent lower than November 2020.

The month's seasonally adjusted annualized rate of sales came in at 14.4 million, according to Motor Intelligence, up from November 2021's 13.2 million rate but down from 15.3 million in October.

Rising interest rates are increasing customers' monthly payments, but dealerships are now selling fewer vehicles above sticker price — 41 percent in November vs. 50 percent in July, according to J.D. Power and LMC Automotive.

"While inventory levels are improving, some OEMs are still facing logistical challenges, while consumer confidence is depressed in the context of high inflation," said David Oakley, LMC Automotive's manager of sales forecasts for the Americas. "With interest rates continuing to increase, some buyers are likely finding it more difficult to finance vehicle purchases, while average transaction prices are still at near-record highs. Under these conditions, some potential buyers are surely waiting on the sidelines, or turning to the used-vehicle market."

TrueCar said November retail sales were roughly even with a year earlier but that fleet sales were rebounding significantly from the low levels caused by production disruptions in 2020 and 2021. It projected a 68 percent jump in fleet sales from November 2021.

Consumers "continue to face affordability challenges and high monthly payments, keeping many on the sidelines," said Zack Krelle, industry analyst at TrueCar. "To maintain sales momentum, manufacturers appear to be shifting some of the new supply to non-retail sales."

Still, inventory remains a key driver of sales, at least for import brands. Hyundai said its inventory had more than doubled from a year ago, to 39,898 vehicles at the end of November, and increased from 31,529 a month earlier. Toyota's overall inventory levels declined slightly in November, but it reported having about 4,500 more unsold vehicles at its dealerships — as opposed to in the logistics pipeline — to start December than it did a month ago.

Jack Hollis, head of sales for Toyota Motor North America, said the company plans to finish the year "at about 2.1 million" sales, which would represent a drop of around 10 percent from 2021 but be largely flat from 2020. The projected drop would mean Toyota likely won't repeat its 2021 feat of being the top-selling automaker in the U.S., but Hollis said Toyota sees the industry recovering to about 15 million sales in 2023.

"What has happened with interest rates has been more about what it does to the psyche of everybody kind of waiting for something," Hollis said. "When you don't know exactly how high interest rates are going to go, people have to stop and pause and see where it's going.

"In the short term, we're still seeing waiting lists for new vehicles, and we still see super-low inventory and low incentives, so the impact [of rising interest rates] has been negligible," he said.

"But what you're hearing and what you're starting to see in the used-car price decreases, you're starting to see people slow up a little bit."