May Auto Sales Slump to Slowest Pace YTD

“Auto sales in May are traditionally quite strong, spurred in part by the long Memorial Day weekend. But that was not the case this year,” Cox said.

New vehicle buying conditions are challenging for many would-be buyers. Borrowing costs are rising with higher interest rates, and higher gas prices are driving up vehicle operating costs as well.

Gas prices hit an all-time national average high of $4.67 on June 1. The inflationary trend is driving consumers to consider electric vehicles (EVs), hybrids, and smaller, more fuel-efficient gas-powered models, according to Kelley Blue Book (KBB).

The shopping behavior analysis by KBB indicates that the search for EVs soared 73% since January, while hybrid demand rose 25% over the same period. Shopping for more fuel-efficient gas-powered models, like small and midsize cars, rose 33% during that same timeframe.

Finding them on vehicle lots, however, is proving to be a challenge, the company said. Inventory levels for hybrids and compact vehicles remain well below the industry average. 

Higher costs, coupled with a lack of available products to buy, suggest that only two types of people are still in the market: Those with immediate transportation needs and wealthier households less concerned with price points, the report said.

“Many consumers are choosing to wait, although the situation is unlikely to change quickly. And with interest rates increasing – the waiting game has downsides as well,” Cox said.

Vehicle availability will begin to improve in the months ahead but will remain historically tight throughout 2022. The reason, the automotive agency said, is ongoing supply constraints coupled with months-old order fulfilment. These dynamics are preventing significant inventory accumulation.

“With low unemployment and rising wages, there is sufficient demand for higher sales,” Cox said. “But the story is unchanged: A lack of inventory is holding the automotive industry in check.”

The seasonally adjusted annual rate of sales in May was near 12.7 million, hitting a low point of the year.

By David Schollaert, David@SteelMarketUpdate.com