What-Ifs Cloud Auto-Sales Predictions

In April, things were looking horrible for the used-car market, more so than new-car business.

Used-vehicle wholesale auction volumes were down 80% for the week ending April 12.

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Used-vehicle sales at franchised dealerships declined 61% vs. the pre-virus forecast. That was 7 percentage points worse than new-vehicle sales.

In May, there was “a massive amount of (used-vehicle) supply,” says Jonathan Smoke, chief economist for Cox Automotive.

Today, it is a different story.  

“Used-car prices now are at high points,” Smoke says at an outlook session of the Center for Automotive Research’s online Management Briefing Seminars. “It’s unprecedented. We’ve not seen anything like this before.”

From the beginning of the year, wholesale used-car prices are up 12%, retail prices, 5%, he says.

“That’s positive for the new-vehicle market,” Smoke says, because high used-car prices can nudge some consumers to buy new.

Vehicle sales are off compared with last year, but they are recovering from the trough months of March and April. Leasing, which was in worse shape, is getting better, too.

In the spring, automakers gave generous consumer incentives for new-vehicle purchases. But OEMs offered nothing equivalent for leasing, and volume for that dropped dramatically.

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Automotive business was off as much as it was in the spring largely because dealerships in many states were closed by COVID-related government orders.

Stronger sales of late reflect pent-up demand, Smoke says. But he wonders if July’s pace of car buying will carry on. 

He and other analysts cite potential impediments to future vehicle sales. Among them: Consumer sentiment is flat, high unemployment remains an issue and a second wave of the coronavirus could hit, further disrupting the economy.

The seasonally adjusted annual rate for July was 14.5 million units compared with April’s rock-bottom COVID-induced 8.7 million-unit SAAR, according to Wards Intelligence. That compares to five straight prior years of vehicle deliveries above 17 million.

At the CAR outlook session, Mike Wall, IHS Markit’s director-automotive analysis, offers three different predictions for U.S. auto sales in 2024: baseline (16.1 million), optimistic (16.6 million) and pessimistic (15.3 million). Factored into the last one is a potential second wave of the virus hitting the nation.

“Could a V-shaped recovery save the day, or will a second COVID wave derail the market?” he asks. So far, “demand has hung in there, relatively speaking.”

Globally, the auto industry “is not out of the woods, but it is progressing,” says Jeff Schuster, LMC’s president-Americas operation and global vehicle forecasting.

In May, LMC was forecasting 2020 global vehicle production of 71 million units. Since then, that’s been bumped up to 73 million, Schuster says. That compares to 92 million last year.