Despite a challenging economic environment, U.S. vehicle sales appear to have held their ground through the second quarter, with automakers expected to release figures Wednesday showing results on par with a year ago.
American shoppers have been navigating a tough stretch since early spring — dealing with sharply higher fuel costs, rising inflation, job market anxiety, and concerns stemming from the Iran war. Even so, research firm Cox Automotive projects roughly 4.16 million vehicles were sold during the quarter, essentially unchanged from the same period last year.
Dealers and industry analysts point to a handful of forces keeping the market stable. A growing portion of vehicle buyers are higher-income consumers who are less affected by inflation and fuel price swings. At the same time, borrowing costs have eased slightly in recent months, giving shoppers a bit of financial breathing room, according to research firm JD Power. Hybrid vehicles have also gained traction among buyers looking to cut down on gas costs, which has helped prop up overall sales numbers.
“The new-vehicle market has been essentially shrugging off the Iran war and this huge run-up that we’ve had in oil prices and fuel prices,” said Charlie Chesbrough, senior economist at Cox Automotive.
Historically, the car industry tends to shrink during times of war and energy shocks. Sales dropped in the months after the U.S. entered Iraq in 2003, and again in 2008 when gas prices climbed above $4 per gallon for the first time. This time around, the market is being cushioned by what economists call a “K-shaped” recovery — a situation where higher-earning Americans keep spending on big purchases while those with lower incomes fall further behind.
Data from S&P Global Mobility shows that buyers with household incomes of $100,000 or less made up just 36% of new vehicle sales last year, a significant drop from 51% as recently as 2020.
The average price paid for a new vehicle in June came in at around $46,400, up about 1% from a year earlier, though still below its all-time peak, according to JD Power. On a more encouraging note for buyers, the average interest rate on a new car loan dropped by roughly one-third of a percentage point in June, landing at 6.66% — the lowest level in four years, JD Power reported.
Consumers are also stretching out how long they finance their vehicles to bring down monthly costs. According to Edmunds, 20% of buyers in the first quarter opted for 84-month loan terms. That strategy appears to be working: monthly car payments as a share of disposable income fell to 13.3% in the first quarter, according to a new report from AlixPartners.
Meanwhile, high gas prices haven’t triggered a mass switch to electric vehicles, but they have pushed more shoppers toward fuel-efficient hybrid models, Cox Automotive data shows. The firm found that 56% of shoppers say rising gas prices make them more inclined to look at hybrids. Through May, hybrid sales in the U.S. climbed 17%, according to Motor Intelligence.
“Every hot product I have is a hybrid or an electric,” said Jim Walen, a Seattle dealer with Hyundai and Stellantis stores.
The hybrid boom has been a particular boon for Toyota Motor, which leads the industry in hybrid sales. Cox analysts say the trend could be enough to push Toyota ahead of General Motors for the top spot in overall U.S. sales this year. Toyota last claimed that title in 2021, which was the first time in nearly a century that GM had been knocked from the number one position.
