FILE PHOTO: Automobiles for sale are seen at Serramonte Volkswagen in Colma, California, U.S., October 3, 2017. REUTERS/Stephen Lam
(Reuters) – U.S. auto sales are expected to drop 2.1% in May from the year-ago period, as higher prices keep buyers at bay, according to industry consultants J.D. Power and LMC Automotive.
The consultancies see total U.S. vehicle sales of about 1.56 million units in the month, with retail sales of new vehicles expected to drop 3.1% to 1,226,800 units.
Higher prices have led to a soft demand for new vehicles, outweighing the strong economy and record-high consumer sentiment that otherwise should boost growth in U.S. auto sales.
“Manufacturers are responding with larger discounts to take advantage of the Memorial Day weekend which is one of the busiest car-buying periods of the year,” Thomas King, senior vice president of the data and analytics division at J.D. Power, said.
Average incentive spending per unit to date in May is $3,722, up from $3,697 last year.
Sales of used vehicles, however, remain strong, offsetting challenges in new vehicle operations for many dealers.
For manufacturers, despite lower volumes, higher prices are delivering a rise in net revenue. New vehicle prices are on pace to reach $33,457 in May – a month high and up more than 4% from last year, primarily due to weakness at lower price points, according to the report.
“Looking forward, elevated inventory levels remain an issue that will only be corrected through production cuts or higher incentives,” King said.
LMC Automotive, however, maintained its forecast for total light-vehicle sales of 16.9 million units in 2019, a 2.5% fall from 2018.
Reporting by Sanjana Shivdas in Bengaluru; Editing by Shinjini Ganguli