AUTO SALES IDLING AS PRICES REMAIN HIGH / THE WALL STREET JOURNAL

Auto Sales Idling as Prices Remain High

U.S. car sales are stuck below prepandemic levels despite better vehicle availability, more deals

By Christopher Otts

Automakers sold about 3.9 million new vehicles in the U.S. in the July-September period, according to an estimate. Photo: Scott Olson/Getty Images

Elevated new-vehicle prices and high borrowing costs are keeping some car shoppers on the sidelines, pointing to what is expected to be another lackluster sales year for automakers.

Industry forecasters expect third-quarter U.S. vehicle sales to come in roughly flat compared with a year earlier. 

Most major automakers are scheduled to report results for the July-to-September period throughout the day Tuesday.

The sluggish results would put automakers on pace to finish the year with U.S. vehicle sales of around 15.7 million—a slight increase from last year, when supply-chain snags were still crimping vehicle output, but still well off historic highs.

Carmakers posted five straight years of at least 17 million vehicle sales through 2019. 

Many analysts and dealers point to affordability as the primary reason why sales haven’t marched back to those levels.

The average new vehicle in the U.S. sold for $44,467 in September, down nearly 3% from last year as automakers and dealers offer more discounts, according to industry tracker J.D. Power.

But that figure is up from about $34,600 at the end of 2019, reflecting years of sharp inflation during the pandemic, when a shortage of computer chips and other car parts crimped vehicle production. 

Consumers are gravitating to more affordable vehicles. Photo: David Paul Morris/Bloomberg News

Those prices present plenty of sticker shock for consumers who might be returning to the dealership for the first time in five or six years, said Jessica Caldwell, head of insights at car-shopping site Edmunds.

“This market is still pretty unaffordable,” she said.

Automakers sold about 3.9 million new vehicles in the U.S. in the July-September period, 2.3% less than a year ago, according to Edmunds’s estimate. 

Data provider Cox Automotive forecasts a 2.1% decline, while J.D. Power predicts flat sales.  

The Federal Reserve’s decision to cut the U.S. benchmark interest rate hasn’t yet translated into significantly lower borrowing costs for car shoppers. 

New car finance payments averaged $734 last month, up slightly from last year, according to J.D. Power.

In a sign of consumers stretching their wallets, more are turning to leasing to walk away from the dealership with less money out of pocket. 

Leases accounted for 25% of new car sales in the third quarter, up from 20% a year earlier, according to Cox.

Consumers are also gravitating to more affordable vehicles. 

Sales of smaller cars and SUVs are up over past year, while midsize cars, trucks and larger SUVs have declined, according to Cox.

“I don’t think that people really want these teeny, tiny vehicles, but it’s what they can afford right now,” said Cox senior economist Charlie Chesbrough. 

The stagnant U.S. market is among several challenges facing traditional automakers, including fierce competition in China. 

Several European automakers lowered sales or profit forecasts in recent weeks, including Volkswagen, Mercedes-Benz, BMW and Jeep-maker Stellantis.

Stellantis’s shares plunged on Monday after it cut its full-year profit forecast, citing weakness in the U.S. and broader weakening in the global car business. 

The parent of Chrysler, Jeep, Ram and other brands said it would cut U.S. dealer inventories and offer more discounts to clear older models, following months of dealer complaints about overflowing dealer lots and declining sales.

One bright spot in the U.S. industry has been sales of hybrids, which combine battery power and a traditional gas engine. 

Now more than 10% of sales, hybrids are growing faster than the industry as a whole.

Fully electric vehicles also continued to grow, though not at the pace that automakers such as General Motors and Ford had envisioned a few years earlier. 

Sales of EVs were up 8% in the third quarter, accounting for nearly 9% of the overall U.S. market, according to Cox.