Cox Automotive Commentary: February Auto Sales, COVID-19 and a Surprise Rate Cut. Oh, My!

UPDATE, March 4, 2020 – February vehicle sales show the automotive market hasn’t caught coronavirus yet. Sales for the month rose nearly 8% over last year, slightly above our forecast of a 6% increase.  The SAAR finished at 16.8 million rate which is above our 16.6 million expectation. Clearly this is a good signal for the vehicle market in that all the concerns surrounding the economy and virus have not kept buyers away. However, the real test will be this month, and whether March sales can maintain the same level of activity. The huge declines in the stock market over the last week, coupled with the rising uncertainty surrounding the virus, are bound to have some impact on vehicle sales. The key question, which won’t be answered for a few weeks yet, is how much.

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Early results from sales day suggest a February market that performed near or slightly better than our forecast of 1.33-million units and a SAAR of 16.6 million. Good weather across most of the country, coupled with an extra sales day in a leap-year month, helped support today’s results. Our forecast called for a steady pace in February and that is what we got.

In the past week, COVID-19 concerns have caused significant volatility in financial markets, but it does not appear that the U.S. vehicle market in February was impacted in any way. We will be watching March sales carefully. It is possible March sales could be impacted, depending on how the next few weeks unfold and how the markets react. If the U.S. does not see a severe outbreak leading to U.S. travel restrictions and quarantines like China, South Korea, Japan and Italy, then the impact on the U.S. economy and the auto market will be subdued.

Nevertheless, cascading COVID-19-related issues around the world should cause the U.S. economy to see less growth. Likewise, new-vehicle sales could fall from the 16.6 million in our original full-year forecast released in January. The used-vehicle market, on the other hand, should remain robust if not strengthen somewhat, especially throughout the spring tax refund season.

While auto interest rates have held relatively high in recent months and averaged 5.69% in February, down from 5.75% in January. According to our Industry Insights team, today’s surprise move by the Federal Reserve will not lower interest rates for most car buyers. In fact, the stock market has not responded well to the cut – at the time this is being posted – so vehicle demand could actually be hurt by declining wealth and lower consumer sentiment, which typically follows stock market corrections. Bottom line: Stock market volatility, COVID-19 concerns and even the political landscape in this election year are all wild cards that weigh on consumer confidence and may well become a drag on auto sales.

In February, data from Dealer.com websites indicate vehicle shopping was healthy – up from the year-ago level, but the Cox Automotive Rates & Incentive team shows incentive program volume was down. The lower volume, however, may be a healthy sign as dealers have been indicating the incentive complexity and restrictions (i.e., too many complicated programs) are limiting their ability to close deals. Read the latest Data Point. Transaction prices in February, on the other hand, continued to increase. According to the team at Kelley Blue Book, the average transaction price paid for a new vehicle last month was $37,876, up more than 2% from February 2019. Some of the biggest increases were found in the popular midsize SUV and midsize truck segments. Read the details.

Overall, February 2020 auto sales appear to be coming in near the Cox Automotive forecast. As Charlie Chesbrough, senior economist at Cox Automotive, noted last week, “We’ve settled at a slower pace over the last few months, and our expectation is the new pace will continue this month.”

If you would like to speak with one of the expert analysts from Autotrader, Kelley Blue Book or any member of the Cox Automotive Industry Insights team, please contact us.