Despite the winter storms and bitter cold that’s enveloped much of the U.S for a chunk of January, consumers appear to be finding time to go to auto dealers and buy new vehicles. They’re being rewarded with lower average transaction prices in the process.
January sales are expected to rise 4.4% as inventories continue to rise.
According to J.D. Power & Associates, the auto industry should start the year strong, predicting new vehicle sales in January will be up 4.4% compared to the same time last year. That translates to more than 1.1 million new vehicles sold or a seasonally adjusted annualized rate, or SAAR, of 15.6 million vehicles.
Automakers sold just over 15 million vehicles in 2024 so the current rate would appear to be a nice beginning, but it’s a decline from December’s pace.
“January’s SAAR forecast of 15.6 million is up 0.6 million from last January, however, it is considerably lower than December’s 17.1 million SAAR,” said Thomas King, president of the data analytics division at J.D. Power.
“While the decline from the December sales pace is notable, it is important to recognize that January is typically the lowest sales volume month of the year. As such, the January sales pace is generally not indicative of the long-term outlook for the industry.
While some think sedans are making a comeback, 81.5% of January sales were trucks or SUVs.
More sales, lower prices
While buyers hit the showrooms with some gusto during what’s traditionally the industry’s quiet month, they were rewarded for doing so.
The average retail transaction price for new vehicles is trending toward $44,636, down $238 (0.5%) from January 2024. The combination means that buyers are on track to spend nearly $38.5 billion on new vehicles this month — 5.3% higher than January 2024, and the highest January on record.
“Consumers will spend more money buying new vehicles this January than any other January on record,” King said. “This notable result shows that retail sales are rising while average transaction prices are declining only modestly.”
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Better choices for less
Not only are they paying less, they have more to choose from as inventory levels continue to rise back up to pre-pandemic levels — a bit over 3 million vehicles — on dealers’ lots. As a result, automakers are sweetening the pot on some vehicles, and apparently buyers are liking it.
The average incentive spend by automakers rose 29.3% from last January to $3,226 per vehicle.
The average incentive spend per vehicle is expected to grow 29.3% from January 2024 and is on track to reach $3,226, according Power. Incentive spending accounts for 6.5% of the average vehicles MSRP. That equates to an increase of 1.3 percentage points from a year ago. Spending decreased by $130 per unit from December 2024, which is the norm at this time of year.
“One of the drivers of higher incentive spending from a year ago is the increased availability of the discounting of lease payments. This month, leasing is expected to account for 24.3% of retail sales, up from 22.6% in January 2024,” King said.
“While attractive lease offers are driving an increase in the lease mix, the industry continues to contend with the lingering effect of reduced leasing activity from three years ago. The number of leases set to expire this month is down 17.6% from December and 36.7% lower than a year ago.”
Interest rates for new vehicle loans are expected to drop slightly this month to about 6.7%.
Monthly spend
While the average price of a new vehicle is down, the average monthly payment is relatively stable compared to last January. The average payment for a new vehicle is $734, which is up $11 from last year. This is despite interest rates on new vehicle loans expected to come in down slightly at about 6.7%, according to Power.
So far in January, average used-vehicle retail prices are $27,794, down $345 (-1.2%) from a year ago. The decline in used-vehicle values is translating to lower trade-in equity for owners, now trending toward $7,636, which is down $538 from a year ago.
Despite some speculation about the rise of sedan sales, people are still buying trucks and SUVs primarily, as they accounted for 81.5% of new vehicle retail sales in January.
If the trade-in equity is $7,636, and the used car price is $27,794, who gets the $20K difference?