By Patrick Manzi, NADA Chief Economist

Today, the National Automobile Dealers Association (NADA) issued its analysis of U.S. auto sales and the economy for the third quarter of 2021 and provided insights into auto sales for the remainder of the year.

“The biggest story this year in the auto industry has been the semiconductor microchip shortage, which has severely impacted vehicle production throughout the globe,” said NADA chief economist Patrick Manzi. “Supply chain disruptions have limited new vehicle production which has translated into less vehicle inventory on dealer lots, and restricted new vehicle sales.”

At the end of the third quarter, new vehicle inventory in the U.S. was just under a million units or approximately 24 days of supply—a 65% decrease from the start of 2021. In contrast, at the end of the third quarter in 2020, inventory was at 2.7 million units or a 50-day supply. Suppressed inventory levels are unlikely to change significantly before the end of the year and will continue into 2022.

Reduced inventory, while not a limiting factor earlier in the year, has slowed new vehicle sales in recent months. The September SAAR fell to 12.2 million units, only 100,000 units above the SAAR observed in May of 2020 when the U.S. remained under COVID lockdowns. In the third quarter, the seasonally adjusted annual rate (SAAR) of sales declined to 13.3 million units, down significantly from the second quarter 2021 SAAR of 17.0 million units. After sales peaked in April 2021 at a SAAR of 18.3 million units, one of the highest monthly SAAR rates this century, new vehicle sales declined each month in the third quarter as the microchip shortage continued to impact new vehicle production and inventory levels.

While sales were down for new vehicles as a whole due to inventory, battery electric vehicle (BEV) sales totaled 300,635 through the first nine months of the year, an increase of 91.3% compared to the same time in 2020. BEVs still represent a small number of the vehicles sold at franchised dealers and represent 2.6% of all new vehicles sold year to date in 2021, up from 1.5% compared to same time period in 2020. Franchised auto dealers hit a milestone related to BEV sales: from 2012 to the end of the third quarter 2021, franchised dealerships have sold 501,507 new BEVs. NADA anticipates franchised dealers will capture a greater share of BEV sales as new electric vehicle products come to market.

Given supply limitations in the auto industry, NADA has reduced its new light-vehicle sales forecast from 16.5 million to 15.2 million units.

From a pricing standpoint, the average new vehicle transaction price reached $42,921 at the end of the third quarter, according to J.D. Power, while the average monthly payment for a new vehicle finance contract reached $655. Manufacturers have had to discount new vehicles less given this tight market. Average incentive spending per unit fell to $1,793 at the end of September, a record low. Tight new vehicle supplies coupled with lower discounts have been the major drivers of increasing new vehicle transaction prices. However, high trade-in values and low interest rates have helped consumers mitigate these increasing vehicle prices.

With limited new vehicle inventory available, many consumers have turned to the used market for their vehicle needs, which has pushed wholesale auction and retail prices to records in the summer. According to the Manheim Used Vehicle Index, used vehicle wholesale prices hit a new record high at the end of the third quarter 2021, up 27% compared to the same period in 2020. At the end of September 2021, average used vehicle transaction prices at franchised dealerships were up 20.1% compared to September 2020, according to J.D. Power. Used vehicle wholesale and retail prices will remain elevated until new vehicle inventory levels increase and move closer to pre-pandemic levels.

At the macro level, Real GDP in 2021 is expected to grow by 5 to 6% on an annualized basis, and approximately 5% in 2022.

In the labor market, 194,000 jobs were added to the economy in September 2021; well below expectations, but estimates for previous months were adjusted, indicating more jobs were added than initially estimated. The number of unemployed persons per job opening has fallen from 5.0 at the height of the pandemic in April 2020 to 0.8 unemployed persons per job opening at the end of July 2021. As of the end of July 2021, there were a series high of 10.9 million job openings across the U.S.; however, the U.S. labor market still employs 5.0 million fewer people than before the COVID pandemic.

At franchised new-car dealerships, employment has remained steady at 1.08 million workers. Like many other industries, some dealerships have struggled to find workers to fill roles due to strong labor demand nationwide.

Related to interest rates, NADA sees no move by the Federal Reserve in 2021 through 2023 as the economy continues to recover from the coronavirus pandemic; however, inflation remains a point of conversation for economists. The Federal Reserve has signaled that they will tolerate periods of above target inflation, slightly above 2%, as the economy recovers from the global health crisis. NADA anticipates that inflation will measures will top 4% for all of 2021.

“While COVID is still in the driver’s seat, the U.S. economy continues to show signs of recovery,” said Manzi. “The biggest obstacle for the auto industry moving into the fourth quarter and for 2022 will be rectifying supply chain disruptions to restore new vehicle production and sales.” Read the full September 2021 NADA Market Beat report.

Posted by NADA

National Automobile Dealers Association