New car sales have helped power the U.S. economy in recent years, but the sales pace is definitely slowing.
With a string of record sales months, demand for new vehicles appears to be on the decline. A forecast from J.D. Power estimates new car sales will be down in August by 6.5% from August 2015 – a significant drop.
John Humphrey, senior vice president of the global automotive practice at J.D. Power, said until earlier this year, new vehicle sales had grown every month since September 2010. This year, sales have gone down in each of the last four months.
“Softening retail sales amid low interest rates, relatively cheap gas and automakers pushing more aggressive incentives may be an indicator that further growth in this cycle will be difficult,” Humphrey said. “There is opportunity for some catch-up in the all-important Labor Day selling period, but as momentum slows, the industry will need to be cautious to balance volume and margin, as incentives are close to record levels."
Smaller decline seen
Edmunds.com also forecasts a sales drop, but not as much of one. It predicts sales actually rose slightly in August over July, but will end up being slightly lower than August 2015.
"The summer isn't delivering explosive sales like we saw last year, but the industry is still on pace to set an annual sales record," says Edmunds.com Executive Director of Industry Analysis Jessica Caldwell.
She says carmakers have stayed disciplined about managing their inventories and don't feel the added pressure to provide big incentives in order to make sales. But with declining sales, consumers should find plenty of good deals.
Kelley Blue Book (KBB) also sees a modest sales decline for August. The automotive valuation service is projecting a 2% year-over-year drop in sales. Even so, Tim Fleming, analyst for Kelley Blue Book, says the market remains healthy – it's just readjusting.
“The mix of sales is divided, with demand for utility vehicles continuing to grow at the same time that car sales are falling,” he said. “As we reach the peak of the market, Kelley Blue Book will keep an eye on a few key factors, including increased fleet penetration in 2016 combined with flat retail demand, rising incentive spend [sic] from automakers, and used car prices, which have yet to respond to the growing supply of off-lease vehicles.”
Any changes in the direction of these factors, he says, could speed up a decline in new-car sales.
For consumers, the report suggests where they might find the best deals. KBB reports GM sales will likely be down for a fifth straight month, meaning dealers might be more likely to make deals. On the other hand, Hyundai and Kia are gaining market share, suggesting those dealers might be a bit less likely to offer generous incentives.