U.S. Car Sales Are Down, Average Transaction Prices Are Up

Matt Posky
by Matt Posky

Yesterday, we covered how the economic ramifications of the pandemic has negatively impacted the sales volume of electric vehicles (the ones that aren’t status symbols, anyway) in the United Kingdom. We’ll take a broader view of things today, focusing entirely on the general sales trends taking hold in the United States ahead of the Labor Day weekend.

Under normal circumstances, this would be a period where dealerships tempt the public with juicy discounts to clear out their lots for the subsequent model year. But the pandemic has left factories idle for months and vehicles in short supply. While that wasn’t an issue when everyone was first locked indoors, many states allowed their citizens to reclaim their autonomy as dealers sought new ways of selling without the face-to-face rigamarole of interacting with customers directly. We’re now in a situation where demand remains suppressed but has increased to a level where it outpaces the supply of many popular models — increasing the average transaction price of vehicles.

It’s not a great time to be shopping for a car.

While the months between March and July represented a particularly large gap against 2019 sales, August’s volume is estimated to be nearly 20 percent lower that the previous year’s figures. But with people gradually coming back to a market that’s been idle for months, automakers claim they can’t build some models fast enough to meet demand after exhausting their vehicle reserves.

According to J.D. Power, the average transaction price for a new vehicle rose to $35,420 (a relatively conservative figure) last month. While that’s hardly what someone wants to see in a recession, the situation is said to be the direct result of the laws of supply and demand. The people who are actually buying cars tend to purchase slightly nicer ones and dealerships don’t have many on hand. In recent piece analyzing the market, The Wall Street Journal also noted that the continued trend of lengthening loans has allowing consumers to purchase expensive vehicles with comparatively low monthly payments.

From WSJ:

The auto industry is following a trajectory similar to the housing market, where low interest rates and a shortage of available homes have propelled prices higher.

The automobile market is just one of many parts of the economy in which the divide between haves and have-nots appears to be starker than ever.

With the pool of potential buyers limited by the economic fallout from the ongoing health crisis, U.S. car sales have declined, down 19.8 [percent] in August, according to Motor Intelligence, and car executives say they expect sales to remain depressed for the remainder of the year.

Younger car buyers are getting priced out of the new-vehicle market as auto makers have turned away from cheaper small cars and sedans to focus on bigger, higher-margin vehicles.

Something tells me that further disenfranchising youngsters isn’t a wonderful long-term strategy for the United States, lenders, or the automotive industry in general. The mere fact that demand is down while prices have climbed upward seems to be an overt warning that something is amiss here. But there’s always a chance this crisis will be short-lived. The response to the virus (be it prudent or foolishly reactionary) really mucked up the economy, and the automotive sector has suffered just like everyone else.

Most analysis seem convinced that this will be a temporary issue, however. People are coming back to purchase vehicles and they’re buying the models with higher-than-average margins — which is good news for manufacturers. Yet none of them have ignored the plight of younger adults and those who happen to occupy to lower rungs of the socioeconomic ladder.

“We’ve just been amazed at how resilient the market has been,” Michelle Krebs, an analyst for Cox Automotive, told WSJ. “The people who have money have plenty of it, and they are spending it on expensive vehicles. The low end — that’s where the job losses are.”

But while lower interest rates are supposed to help regular people get into a new vehicle, with the Fed backing the notion to keep them exceptionally low even if inflation starts becoming an issue, this often results in customers paying more money over time. Ultimately, this diminishes their buying power elsewhere — potentially compounding the overall problem. We can certainly fault the industry for pushing high-margin utility vehicles and crossovers and allowing ludicrous loan terms. But it’s not their fault that so many consumers are snubbing their most affordable products for something a little bigger or nicer.

Sadly, years of prioritizing upmarket vehicles has resulted in fewer super-bargains on the used lots. Back when compact cars were all the rage, you could find secondhand dealerships with plenty of budget-focused models in good condition. That’s becoming less true, however. Axios recently published its own estimates on vehicle pricing — claiming that the average transaction for a new automobile in August hit $38,414 (up $400 from January 2020) with used vehicles topping $20,445 (an increase of $900).

Assuming manufacturers see the writing on the wall, we envision economy cars making a gradual return to prominence with larger vehicles holding sway with a large portion of consumers. Otherwise, we’ll be left with a large hunk of the population unable to afford basic transportation as we become a third-world nation.

“The folks that are struggling right now, it’s going to be a real challenge when they need a new car,” said Vince Sheehy, president of Sheehy Auto Stores, which has dealerships around Washington D.C. “And those are customers we’re going to lose.”

[Image: Jeff Bukowski/Shutterstock

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • Dartdude Dartdude on Sep 05, 2020

    Need to make all this high tech safety stuff optional and by order only. This stuff is driving up costs and weight. Prices of new cars are crazy high, way too high!

  • Ttacgreg Ttacgreg on Sep 06, 2020

    "Younger car buyers are getting priced out of the new-vehicle market as auto makers have turned away from cheaper small cars and sedans to focus on bigger, higher-margin vehicles"............... It does not appear that automakers have turned away from cheaper smaller cars, the buyer has. If the Fit sold even one quarter as well as the F150, would Honda have stopped selling it here?

  • Lichtronamo Watch as the non-us based automakers shift more production to Mexico in the future.
  • 28-Cars-Later " Electrek recently dug around in Tesla’s online parts catalog and found that the windshield costs a whopping $1,900 to replace.To be fair, that’s around what a Mercedes S-Class or Rivian windshield costs, but the Tesla’s glass is unique because of its shape. It’s also worth noting that most insurance plans have glass replacement options that can make the repair a low- or zero-cost issue. "Now I understand why my insurance is so high despite no claims for years and about 7,500 annual miles between three cars.
  • AMcA My theory is that that when the Big 3 gave away the store to the UAW in the last contract, there was a side deal in which the UAW promised to go after the non-organized transplant plants. Even the UAW understands that if the wage differential gets too high it's gonna kill the golden goose.
  • MKizzy Why else does range matter? Because in the EV advocate's dream scenario of a post-ICE future, the average multi-car household will find itself with more EVs in their garages and driveways than places to plug them in or the capacity to charge then all at once without significant electrical upgrades. Unless each vehicle has enough range to allow for multiple days without plugging in, fighting over charging access in multi-EV households will be right up there with finances for causes of domestic strife.
  • 28-Cars-Later WSJ blurb in Think or Swim:Workers at Volkswagen's Tennessee factory voted to join the United Auto Workers, marking a historic win for the 89- year-old union that is seeking to expand where it has struggled before, with foreign-owned factories in the South.The vote is a breakthrough for the UAW, whose membership has shrunk by about three-quarters since the 1970s, to less than 400,000 workers last year.UAW leaders have hitched their growth ambitions to organizing nonunion auto factories, many of which are in southern states where the Detroit-based labor group has failed several times and antiunion sentiment abounds."People are ready for change," said Kelcey Smith, 48, who has worked in the VW plant's paint shop for about a year, after leaving his job at an Amazon.com warehouse in town. "We look forward to making history and bringing change throughout the entire South."   ...Start the clock on a Chattanooga shutdown.