U.S. new-vehicle market ‘stuck' as buyers wait for relief, sellers try to hang on to profits

There's high drama playing out in the U.S. auto market — like an old spaghetti Western with armed men staring motionless and menacingly at each other across a dusty street.

The question is: Will somebody flinch?

"The market is stuck," said Tyson Jominy, vice president of data and analytics at J.D. Power. "It's a standoff right now — between consumers, dealers, automakers and lenders — to see which one is going to blink."

What was expected to have been a robust August — albeit artificially inflated by a holiday weekend that usually falls completely in September — instead was rather flat, with a seasonally adjusted, annualized rate of sales of just 15.1 million vehicles, according to Cox Automotive and J.D. Power. That's the second-lowest selling rate so far this year, behind January's 14.9 million, according to Motor Intelligence.

Seven automakers reported their August sales Sept. 4 and 5, and all of them with the exception of Volvo reported increases over the previous August. Yet the jumps from a year earlier — when Asian automakers especially were struggling to restock depleted inventory — were underwhelming given expectations, analysts said. Mazda's August sales climbed 37 percent, American Honda was up 25 percent, Ford Motor Co. and Hyundai-Kia were up 13 percent, Subaru's sales rose 12 percent, while Toyota Motor North America squeaked out a 1.9 percent gain and Volvo fell 2.1 percent. Automakers will report their third-quarter sales in October.

GlobalData, which also estimated the SAAR at 15.1 million, said overall sales grew 6.5 percent from a year earlier to 1.4 million vehicles, but it noted that August had 28 selling days because of the holiday weekend — the most of any month this year.

So what's holding back the market? Analysts cite a variety of possible reasons, from uncertainty about the U.S. elections in November to consumers waiting for an anticipated interest rate cut from the Federal Reserve this month, in addition to questions about the health of the economy. But the consensus is that something has got to give before the market moves one way or another.

"Signals indicate that US sales are losing momentum and we do not expect any measurable uptick in the daily selling rate in the coming months," Jeff Schuster, vice president of research and analysis for automotive at GlobalData, wrote in a Sept. 5 industry report. "Consumers who were displaced from the new vehicle market during the pandemic are still facing challenges in managing affordable monthly payments and many have yet to return." As a result, GlobalData adjusted its 2024 sales projection downward by 200,000 vehicles to 16.4 million.

Affordability remains a key issue, analysts said. The average incentive per vehicle rose nearly 60 percent from August 2023 to reach $3,035 last month, J.D. Power and GlobalData estimated. That was up $18 from July.

Just 13 percent of new vehicles were projected to sell above sticker price last month, down from 31 percent in August 2023.

Meanwhile, the average discount's share of the window sticker was tracking at 6.2 percent last month, an increase of 2.3 percentage points from a year earlier — but still well below the 10 percent level that's often seen as a tipping point for hurting brand values.

"A lot of borrowers are really hanging on by a thread," said Charlie Chesbrough, senior economist at Cox Automotive, adding that Cox's most recent estimate of average monthly auto payments was $767 for new vehicles, $566 for used vehicles and $558 for leased vehicles. Those are down slightly from earlier peaks as average new- and used-vehicle prices have been trending lower, Chesbrough said.

"This affordability issue is improving a little bit out there for vehicle buyers, but it still remains at very, very high levels," he noted. He said high interest rates are a factor and noted that 20 percent of new-vehicle purchases are now cash deals, compared with just 12 percent five years ago, before the start of the COVID-19 pandemic.

"It's going to be a very challenging second half of the year unless consumers get some relief," J.D. Power's Jominy said. He said the industry may need to do a hard reset of its expectations in a landscape that has priced many consumers out of the new-vehicle market, including budgeting more for incentives.

"We need to reframe the way we think about the industry. I mean, a 17 million SAAR? We're never getting back there," Jominy said. "The price [increases] we've taken means that we have contracted the volume fundamentally in the industry."