New Vehicle Sales Pace to Drop Again in May, Lowering 2017 Outlook

DETROIT - May 25, 2017: The new vehicle retail sales pace in 2017 is expected to be lowest for the month of May since 2013, according to a forecast developed jointly by J.D. Power and LMC Automotive.

With one additional selling day in 2017, retail sales in May are anticipated to reach 1,222,000 units, a 2.9% decrease compared with May 2016 on a selling-day-adjusted basis. The seasonally adjusted annualized rate (SAAR) for retail sales in May is expected to be 13.4 million units, a decrease of 212,000 units from a year ago. With the slowdown expected to continue in the second half of the year, LMC Automotive is reducing its retail light-vehicle sales forecast for 2017 to 13.9 million units.

Incentive spending for the industry continues to rise, and through the first 11 days of May was $3,583 per unit, the highest level ever for the month of May and up $241 from May 2016 ($3,342). Incentives as a percentage of MSRP were at 9.9%, and on pace to exceed the 10% level for 10th time in the past 11 months.

"While consumers will see substantial discounts this Memorial Day weekend, they are not expected to overcome the slowing demand in auto sales," said Deirdre Borrego, senior vice president of automotive data and analytics at J.D. Power. "The holiday weekend is one of the heaviest trafficked car-buying periods and, in 2016, the Friday-Monday selling period accounted for more than 20% of May retail sales."

Despite maintaining record incentive levels, the average days to turn for the industry is above 70 days for the first time since 2009. More than 27% of vehicles sold so far in May sat on dealer lots for more than 90 days, up from 25% last year. "Continued elevated incentives reflect the challenges of balancing record levels of inventory and are likely to remain elevated unless production is adjusted to meet consumer demand," Borrego said.

J.D. Power and LMC Automotive U.S. Sales and SAAR Comparisons

¹Figures cited for May 2017 are forecasted based on the first 17 selling days of the month.
²The percentage change is adjusted based on the number of selling days in the month (25 days in May 2017 vs. 24 days in May 2016).

• The average new-vehicle retail transaction price to date in May is $31,419, a record for the month, surpassing the previous high for the month of $30,886 set in May 2016.
• With record transaction prices for the month, consumers are on pace to spend $38.4 billion on new vehicles in May, about $1 billion more than last year's level and a record for the month.
• Average incentive spending per unit to date in May is $3,583 per unit, a record for the month, and surpassing the previous high for the month of $3,342, set in May 2016. Spending on trucks and SUVs is $3,358, up $187 from last year, while on spending on cars is $3,942, up $344.
• Trucks account for 61.7% of new-vehicle retail sales so far in May—the highest level ever for the month of May—making it the 11th consecutive month above 60%.  
• Days to turn, the average number of days a new vehicle sit on a dealer lot before being sold to a retail customer, reached 71 through May 14. This is the highest level for any month since July 2009 (80).
• Fleet sales are expected to total 320,300 units in May, down 5.8% from May 2016 on a selling day adjusted basis. Fleet volume is expected to account for 20.8% of total light-vehicle sales, a decrease from 21.3% in May 2016.

Jeff Schuster, senior vice president of forecasting at LMC Automotive, said: "On the surface, continued downward pressure on auto sales since the beginning of the year is troubling. However, we believe some of the weakness year-to-date has been exaggerated by jitters over policy risk with the Trump administration. If uncertainty dissipates and tax cuts are initiated—or OEMs engage higher incentives—stronger demand could return for an encore performance in the second half of the year. However, the industry still must deal with negative effect of a growing used car market and the notion of rising interest rates, both of which are real risks to future volume and potential growth."

A reassessment of market indicators and uncertainty risk has led to a reduction in the outlook for this year. LMC's forecast for 2017 total light-vehicle sales has been cut to 17.2 million units, down from 17.5 million previously and a decline of -2.0% from 2016. The retail light-vehicle outlook has also been cut from 14.2 million units to 13.9 million units, a decline of -1.4% from 2016. The reduction in fleet volume has outpaced that of retail with fleet volume expected to be down -4.5% from 2016.

SOURCE J.D. Power