U.S. auto sales are expected to be stronger than a year ago, but set to decline compared with April as concerns simmer about the U.S. economy and whether people will delay or forgo buying new cars amid rising interest rates and higher car prices.
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Cox Automotive has forecast the annual new-vehicle sales pace in May to be near 14.9 million, up 2.3 million from last May's 12.6 million pace but down from April's 15.9 million level.
Sales volume for May is expected to rise about 20% from a year ago to reach 1.35 million vehicles, but to fall about 1.1% from April, which had one additional selling day, Cox Automotive said.
Car buyers are seeing more incentives on dealerships, however, which could lead to lower prices in the second half of the year, some analysts said. Incentives had all but dried up in recent months.
Auto sales have rebounded "somewhat" so far in 2023, CFRA analyst Garrett Nelson said.
Sales volume, however, remains well below prepandemic levels, with the current uptick due to improved inventory levels "as the parts shortages and supply chain issues which plagued auto production over the last two years have eased," he said.
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"With the Fed expected to raise rates at least one more time, we think higher interest rates will continue to act as a strong headwind on auto sales," Nelson said.
Major U.S. carmakers are divided on how they report sales. Tesla Inc. and General Motors Co. report sales by quarter, doing so a few days after the end of a three-month period. Ford Motor Co. reports by month, also announcing the numbers a few days after.
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Earlier Thursday, Chinese EV maker Nio Inc. reported a 12% drop in May sales, sending U.S.-listed shares of Nio toward a three-year low.
Emmanuel Rosner at Deutsche Bank also expected the annual new-vehicle sales pace to hover around 14.9 million vehicles in May.
The dip from April's pace, which by his calculations was around 16.2 million units, was mostly about seasonality, Rosner said. Car sales traditionally heat up in early spring, fueled by tax refunds.
"Improving" vehicle production is likely to fuel a modest increase in the seasonally adjusted annual rate, and inventories are expected to grow steadily and eventually bringing prices down, Rosner said.
For the year, Rosner called for a SAAR of 15 million units, up from his previous expectation of 14.6 million vehicles.
That would represent a "solid improvement" from 2022's SAAR of 13.8 million vehicles, reflecting a stronger start of the year and "pushed out expectations for a recession in the U.S.," Rosner said.
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Prices seem to be holding up for the major U.S. automakers, RBC Capital Markets analyst Tom Narayan said in a recent note. Some "normalization," however, is expected for the second half of the year.
Citing TrueCar numbers, Narayan said that average transaction prices are benefiting from trucks. Incentives for SUVs and cars are "creeping up faster," the analyst said.
"As a whole, incentives seem to be moving higher and this could lead to some net price normalization. Our checks indicate the key is to watch economic fundamentals despite pricing and customer holding up so far," Narayan said.
May average transaction prices are expected to be up 2.7% year-over-year, and about 0.6% higher from April, the analyst said.
Average incentives are seen up 64% year-over-year, and 13% month-on-month. It implies incentives as a percentage of average transaction prices at about 4.2% for May, compared with 3.7% in April. Incentives as a percentage of ATPs have moved higher every month since October, the analyst said.