Dealers are expected to ring in the New Year with higher December-new vehicle sales than those in December 2022, which had one more selling day than this year, according to a joint forecast by J.D. Power and GlobalData.
The downside is that dealers’ unit profits continue to decrease due to rising new-vehicle supply and higher interest rates, though profits are higher than pre-pandemic levels, says Thomas King, president of the data and analytics division at J.D. Power.
“The total retailer profit per unit — which includes vehicles’ gross plus finance and insurance income — is expected to be $2,729 in December. While this is 32.5% lower than a year ago, it is still more than double the amount in December 2019,” says King. “The primary factor behind the profit decline is the reduced number of vehicles selling above the manufacturer's suggested retail price (MSRP). This month (December), only 18.9% of new vehicles are projected to be sold above MSRP, which is down from 32.5% in December 2022.”
Here’s how the raw numbers break down: Comparing the same sales volume without adjusting for the number of selling days translates to an increase of 9.0% from a year ago. The seasonally adjusted annualized rate (SAAR) for total new-vehicle sales is expected to be 15.4 million units, up 1.9 million units from December 2022.
New-vehicle total sales in Q4 2023 are projected to reach 3,826,000 units, a 9.8% increase from Q4 2022 when adjusted for selling days. New-vehicle total sales for 2023 are projected to reach 15,466,000 units, a 13.2% increase from 2022 when adjusted for selling days.
Although dips in profits are never good news, dealers are likely to continue to see steady sales in the new year so profits won’t slump. That forecast is in keeping with the double-digit year-over-year sales growth and is the second-highest consumer expenditure on new vehicles ever recorded for the month of December, says King.
“Total sales of just under 15.5 million for 2023 represent a significant increase of 12.8% from 2022, when just 13.7 million vehicles were sold,” he says. “What's even more noteworthy is that consumer expenditure on new vehicles in 2023 set a record of $578 billion. This is the third consecutive year in which U.S. consumers spent more than half a trillion dollars buying new vehicles.
“In 2024, retail inventory is expected to keep rising and that increase in supply will lead to moderation in pricing. Additionally, anticipated interest rate cuts will also help affordability. This trend will drive an increase in sales, but at the expense of OEM and retailer per-unit profitability. This tradeoff between increased volume and lower per-unit profit means that total profitability for OEMs and retailers will remain very strong relative to historical levels.”
