Strong U.S. New-Car Sales Defy Expectations


Despite rising interest rates, concerns about the economy, and limited inventory, strong quarterly new-car sales in the U.S. have surprised investors on Wall Street.

Ford Motor Co. announced an impressive 11% increase in U.S. second-quarter sales, following the positive sales reports from General Motors Co., Tesla Inc., and other companies earlier in the week.

Analysts at Cox Automotive attribute this boost in sales to a significant increase in fleet sales and the resilience of American car buyers. Despite high prices and record auto loan rates, consumers have remained determined to purchase new vehicles.

According to Cox Automotive chief economist Jonathan Smoke, car buyers tend to make decisions that defy economic logic. They overspend, exceed their budgets, and sacrifice other expenses to satisfy their desire for a new ride.

Cox Automotive has raised its expectations for new-car sales in 2023 to 15 million vehicles, up from the previous estimate of 14.1 million. This includes a projection of retail sales reaching 12.4 million vehicles, exceeding the previous expectation of 11.9 million.

In June, analysts at Deutsche Bank estimated the U.S. seasonally adjusted annual rate (SAAR) to be 15.8 million vehicles, surpassing their initial forecast of 15.5 million. This marks an increase from May’s SAAR of 15.1 million.

These robust sales figures indicate that American consumers are defying expectations and demonstrating their strong appetite for new cars.

Improving Auto Sales Expected to Continue

The automotive industry is experiencing a positive shift in sales after facing some shortages in June 2022, according to analysts. They have stated that there has been a significant improvement in the sales pace during this period. Despite this progress, average transaction prices have seen a slight decrease from May to June, hovering around $45,800.

Looking ahead, the analysts anticipate that the situation will improve further as vehicle production increases. However, they also note that there will be broader pressure on the U.S. consumer, leading to a steady growth in inventories and eventually resulting in downward pressure on pricing.

In terms of sales figures, it is predicted that the yearly SAAR (Seasonally Adjusted Annual Rate) will remain around 15 million vehicles. This reflects a solid improvement compared to last year’s figure of 13.8 million and slightly surpasses the 2021 figure of 14.9 million.

In contrast, Cox analysts have estimated the June SAAR to be slightly higher at 15.7 million vehicles, surpassing their previous estimate of 15.2 million. However, they caution that the second half of the year may present fewer positive surprises. Limited total supply and higher prices and interest rates could potentially impact demand.

It is believed that neither prices nor interest rates will decrease significantly enough to stimulate demand beyond the current market capacity. As a result, the automotive industry may be reaching a turning point, where the balance between supply and demand becomes more apparent.

This balanced market is expected to bring about smaller, yet more predictable changes in sales, reducing the occurrence of major price fluctuations and generating fewer headlines in the industry.

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