Add Higher Interest Rates, On Top Of Record-High Prices For New Cars And Trucks

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There's plenty of wide-open space at this secondary lot outside a California dealership. The ... [+] computer chip shortage continues to drive low inventory and high prices.

There’s still no break in sight for high new-car prices, which are on pace to set another record in May, with interest rates also on the increase, according to a joint forecast from J.D. Power and LMC Automotive.

The average new-vehicle transaction price is expected to reach a record for the month of May of $44,832, the May 25 forecast said. That’s a staggering increase of $6,577, or about 16%, vs. the estimate for May 2021.

What’s driving record-high prices is the ongoing computer chip shortage, which is limiting new-vehicle production. Forecasters for J.D. Power and LMC Automotive expect new-vehicle sales of about 1.2 million cars and trucks in May, down 18% vs. May 2021, based on the estimated daily selling rate.

Thomas King, president of the data and analytics division at J.D. Power, said in the forecast that month-end inventory for May is expected to be below 1 million cars and trucks total. That’s the 12th consecutive month of inventory below 1 million, he said.

With too much demand, relative to too little supply, “Record transaction prices are the result,” King said.

Cox Automotive said in a separate forecast published on May 24 that new-vehicle inventory was down 48% vs. a year ago. That’s a total of 1 million fewer cars and trucks than the start of 2021, and 2.5 million lower than 2020.

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Primarily because of persistent low inventories, Cox Automotive has cut its full-year U.S. auto sales forecast for 2022 to 15.3 million, from a forecast of 16 million early this year. Even hitting 15.3 million requires stronger sales in the second half of 2022, Cox Automotive said. So far this year, a stronger second half is looking less likely.

On average, interest rates are still moderate by historical standards, but interest rates are also on the rise.

According to J.D. Power and LMC Automotive, The average auto-loan interest rate in May is expected to be 4.92%, up 62 basis points, or 0.62 percentage points, vs. a year ago.

The Cox Automotive forecast says, “Rising interest rates could make affordability a bigger issue in 2022.”