Mixed Economic Signals in October US Vehicle Sales

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Now that the final number are in, new US light-vehicle sales in October 2022 showed a Seasonally Adjusted Annual Selling Rate (SAAR) of 14.9 million units, the second-highest monthly total this year. It was up 12.7% compared to  October 2021 and increase 9.8% from September 2022.

The average transaction price in October, according to J.D. Power, is forecast to be $45,599, a 2.7% increase year-over-year. However, this is only off $26 from September. The old economist’s adage that prices are sticky downward applies we think. Transaction price highs of +$46,000 were experienced during July and August. 

Nonetheless, automaker discounts persist at record lows. Average incentive spending per unit per Power is forecast to total $882, which is down 44.7% from October 2021. This is the sixth straight month below $1000. The question is when do vehicles become un-affordable as the Federal Reserve is deliberately sending the economy into a recession to fight inflation, which the Fed caused by years of of cheap monetary policy that mostly benefited the rich. In a mass market for automobiles, the rich can’t buy all the vehicles if and when production resumes to pre-pandemic rates that were running at 17 million vehicles annually. The capacity to build that many vehicles is still there.

Patrick Manzi, chief economist at the National Automobile Dealers Association, says that “at the end of September, the average interest rate on a new-vehicle finance contract had risen above its pre-pandemic level and climbed even higher in October. It’s will likely reach 6.03%, an increase of 199 basis points from October 2021 and the first time the average rate has been above 6% since mid-2019.”

“Additionally, the Fed increased the Fed Funds Rate by 75 basis points at its meeting this week,” Manzi says. “This will add further upward pressure to consumers’ new- and used-vehicle monthly payments. Despite these rising costs, we still foresee new-vehicle demand as remaining robust and new vehicles continuing to turn quickly in the final months of the year. Our forecast for new-vehicle sales in 2022 is 13.8 million units.”