J.D. Power: Manufacturers and Retails Bring Record Profits, Car Prices Soar

New vehicle inventory is low, the average price for the consumer is going up, and retailers and manufacturers are making record profits with record margins. Those are three of the main takeaways of J.D. Power's Automotive Forecast for June 2022. It has also been the worst six months of sales volume since 2011, excluding 2020's pandemic-affected sales.

"For June, new-vehicle prices continue to set records, with the average transaction price expected to reach $45,844—a 14.5-percent increase from a year ago and the highest level on record," said Thomas King, president of the data analytics division at J.D. Power in a press release.

"Consequently, even though the sales pace is down 18.2 percent year over year, consumers will spend $44.3 billion on new vehicles this month, the second-highest level ever for the month of June but slightly down 2.7 percent from June 2021 due to reduced volume."

Retail sales are expected to reach 965,300 units, accounting for that drop. The second quarter is expected to get to about 2.97 million units, an even bigger 23.3-percent decrease. The first six months of 2022 are also down, though the report notes that the first half of 2021 was a record for retail sales.

Car dealership
The Labor Department announced on Monday that consumer prices rose 8.6% last month from a year earlier. Inflation has risen to its highest level in four decades, raising the cost of airfare, hotels, vehicles, gas, and food. Spencer Platt/Getty Images

The incentive money manufacturers are giving on new vehicles is down as well, partially due to the leasing market that now gets less. Additionally, the average interest rate for new vehicle loans is going up and expected to hit 5.01 percent this month.

"The average incentive spend per vehicle is tracking toward $930, a decrease of 59.4-percent from a year ago and the second consecutive month under $1,000. Incentive spending per vehicle is trending toward a record low of 2.0%, the fifth consecutive month below 3.0%," said King in the release.

"One of the factors contributing to the reduction in incentive sending is the absence of discounts on vehicles that are leased. This month, leasing will account for just 18 percent of retail sales. In June 2019, leases accounted for 30 percent."

Demand is still up, with more than half of new vehicles sold within 10 days of hitting the dealership lot. The average number of days a vehicle is in the dealer's possession is now just 19 days, down from 37 days last year. But it hasn't affected profit for them.

2022 Ford F-150 Lightning
The F-150 Lightning is distinguishable from the rest of the F-Series lineup by its large LED light bar and closed grille area. Ford Motor Company

"Total retailer profit per unit is on pace to reach a monthly record of $5,123, an increase of $1,174 from a year ago. Eight of the past nine months have seen retailer profit per unit at or above $5,000. This elevated per-unit profit level is more than offsetting the drop in sales volume," said King.

"The month of June is projected to be up 10.3% from June 2021, reaching $4.9 billion, the best June ever and the fourth-highest amount of any month on record."

The only card consumers can play is selling their used vehicle, which has helped new vehicle buyers weather the price increases. The average trade-in equity is now over $10,000 for the first time, a 49.2 percent increase from last year. However, the average monthly payment is also at a record high of $698, a 12.8 percent increase.

For now, the elevated demand will continue to help the industry. But prices will decrease as availability improves. That works for dealers too, as the record per-unit price drops, but higher monthly sales volumes return.