Demand is high but low inventory will temper results, according to June 2021 forecast

As June brings the first half of a historic 2021 to a close, the forecast for the month’s end remains largely positive. JD Power and LMC Automotive predict that retail new car sales will be well over 1.1 million units. That represents a 12.4% increase over last year’s pandemic sales and a slight 0.3% edge over the more normal 2019 sales figures for the same month when adjusted for selling days.

Wen the second quarter wraps up, it’s JD power and LMC Automotive are projecting it will be 44.2% higher than Q2 2020 and an impressive 10.7% above the benchmark set by Q2 2019. That same pace is maintained for the half-year of sales as compared with 2019, adjusted for selling days.

If the projections are accurate, sales volume through the first half of the year will be the best on record.

Higher average transaction price

Another record to be set for the half-year is the average transaction price. It’s on pace currently to be $38,088 per unit, which would be 10.1% higher than 2020 and a monstrous 14.1% increase over 2019’s H1 average transaction price.

President of the data and analytics division at JD Power, Thomas King, said in the press release, “Despite inventory shortages constraining the volume of vehicles sold to consumers, the underlying strength of consumer demand is clear. Consumers are buying more expensive vehicles despite smaller discounts, which is dramatically increasing the profitability of those sales for both manufacturers and retailers.”

Along with higher transaction prices come higher profits for dealers. It’s expected the average per-unit sales profit will be $2,844 – more than double the profit per vehicle sold during the same time frame in 2020 ($1,310). Combined with F&I profits, it’s an outstanding average of $3,908 per unit.

The average transaction price increase comes on the back of a few factors: less incentive spending from manufacturers, explosive demand from consumers, and a much smaller selection of vehicles available due to production challenges.

Low inventory is still the top challenge

With the chip shortage potentially ready to turn a corner, production could soon ramp up to near-normal levels for carmakers worldwide. However, it will take months for the inventory levels to catch up. Average time that a new car spends on a dealer’s lot right now is just 39 days, down from 93 days in June 2020. Dealerships are selling new cars before they hit the lot in many cases, or as soon as they get off the truck. Approximately 41% of new cars “will be sold within 10 days of arriving at the dealership” through June.

How the third quarter is expected to start

Consumer demand for vehicles in the US is showing no signs of slowing down. Dealerships can expect to continue the breakneck pace of turning over their inventory faster than they’ve ever done before, but that inventory will continue to be tight. The lack of supply appears to be the only factor that could suppress another record-breaking month.

King says, “Looking forward to July, with inventory levels at historical lows, dealers turning inventory on lots at a breakneck pace, and demand continuing to exceed production, the overall industry sales pace may continue to be supply constrained. However, regardless of inventory position or production levels, manufacturers and retailers will persist to benefit from the current unprecedented level of consumer demand realizing higher profits per every unit sold.”

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