Car Sales Are Zooming as CU Data Reveals Unclear Road Ahead Posted by AVCU on 8:37 AM

 Automotive sales set records for April, and signs have been signaling strong sales will continue in May despite high prices and tight supplies for both new and used cars, Cox Automotive Chief Economist Jonathan Smoke said Tuesday.

“March ended up being one of the strongest in history for retail vehicle sales, and it appears April saw even more strength,” he said in his weekly “Smoke on Cars” video report.

“The used vehicle market did see slowing momentum in the last week of the month, but the new vehicle market — somehow — had gaining momentum despite ever-tightening supply and record prices.”

The Irvine, Calif., data analytics company’s consumer survey showed an increase in shoppers who intended to buy a car this month. Smoke said one factor continuing to drive new car sales is a persistently high level of zero-percent financing offers from captive lenders.

The share of zero-percent financing was 9.8% in April, down from 10.1% in March and a peak of 21.3% in April 2020 in the first weeks of the COVID-19 pandemic. From 2017 through 2019, only about 3% to 5% of deals offered zero-percent financing.

Competition from captive lenders is one reason credit unions have performed below the market in the past year.

The latest data from CUNA Mutual Group’s Credit Union Trends Report showed credit unions held $142.1 billion in new car loans as of Feb. 28, down 4.2% from a year earlier. From February 2019 to February 2020 new car loans fell 0.3%.

Credit unions had $242.7 billion in used car loans Feb. 28, up 4.3% from a year earlier and about the same growth rate as the previous 12 months.

By comparison, credit union non-auto loans grew 7% to $811.7 billion in the 12 months ending Feb. 28, mostly reflecting greater mortgage lending.

A better comparison will come Friday, when the Fed releases its G-19 Consumer Credit Report for March, which will include motor vehicle loans by all lenders.

Cox Automotive and a report issued jointly on April 28 by J.D. Power and LMC Automotive chose to include comparisons to 2019, rather than just 2020 when numbers spiked or plummeted in the months after COVID-19 was declared a pandemic March 11, 2020.

The J.D. Power and LMC Automotive report projected dealers would sell 1.3 million new cars in April, more than double April 2020 and up 20.8% from April 2019 when adjusted for selling days.

Average transaction prices are expected to reach another monthly high, rising 6.8% to $37,572, the highest ever for an April and the second-highest for any month behind December 2020. Going back five years, April 2021 prices were 20% higher than the $31,240 paid by consumers in April 2016.

“Record prices and retail sales mean that, in aggregate, consumers will spend more money on new vehicles than any April on record,” Thomas King, president of J.D. Power’s data and analytics division, said.

The average interest rate for new car loans in April is expected to increase 46 basis points to 4.3% from a year ago, on track for the first year-over-year increase since July 2019.

“The strong sales pace, despite smaller discounts and more expensive vehicle purchases is due in part to extremely strong used-vehicle prices,” King said. “Even with interest rates being slightly higher, the average monthly finance payment is $593, up only $2, aided by average trade-in values rising to $5,502, an increase of $3,087 from a year ago.”

From Dec. 31 to April 30, used car prices rose 32% at wholesale and 10% at retail, Jonathan Banks, vice president of valuations services at J.D. Power, said.

“The used vehicle market continues to be red hot and prices remain at record levels,” Banks said. “This isn’t going to change in the foreseeable future.”