In my market summary for September I stated that “during the 4th quarter we expect the strength of the used car market to help fuel new vehicle sales and we should see demand shifting back to the new market as incentives increase primarily from the Japanese manufacturers.  Incentives on new vehicles are still relatively low for most segments meaning that manufacturers still have the potential to drive additional sales without creating negative implications on brand strength, profitability and used vehicle prices. “  I was wrong… in a sense.  Instead of demand shifting between new and used both the new and used market dramatically improved. 

New vehicle sales for the month topped 13M SAAR which represents the strongest month since April.   This was not a fleet derived sales performance either as JD Power pegged retail sales at 10.3M SAAR up from 9.6M in August.  The sales performance was achieved with a 3.5 decrease in overall incentive spending according to AutoData. 

Used vehicle sales also shined, according to CNW used sales driven by “heavy incentive spending and ultra-rich trade-in values pushed September new-car dealers' used-car sales to 1,189,966 units, an 11.5 percent increase over September '10.” 

So we saw increases in both the new and used market without seeing a definitive shift from used to new or vice versa.  With prices ostensibly remaining strong it points to demand driven sales increases.   Truck sales were a primary driver of the robust sales growth and incentives are relatively high from a dollar standpoint.  We have to wait and see where September incentives fall for truck segments, which we assume will be higher than August, but incentives are nowhere near the high points most recently seen during 2008.  So, even the dramatic truck sales increases were not entirely fueled by extraordinary incentives.

Last month NADA witnessed demand declining for new models while seeing an uptick in demand for used models.  This was expected since it was based on data that was influenced by the uncertainty of the debt ceiling debate which contributed to a low point in consumer confidence.  Clearly our estimate for new vehicle demand underestimated the actual performance of the market.

 The refreshing aspect of the sales increases, from NADA’s perspective, is that used prices remained relatively strong.  Prices on key segments during September performed as expected with the largest declines on small and mid-size cars which averaged between 3 – 3.5% on 2 to 5 year old models and mild declines of about 1% on trucks and SUVs.  On a year over year basis wholesale prices remain very strong with small cars still showing a 16% increase compared to September of 2010.  Midsize and near luxury and traditional midsize are the next best performers with year over year price improvements at around 10%.

Most analysts agree, including me, that incentives will continue to increase during the 4th quarter when Toyota and Honda attempt to recoup market share.  By the way Toyota sales were down ~18% and Honda by 8% in September indicating that inventory shortages are still hampering both manufacturers.  Based on the assumption that demand drove the 13M mark this month expect sales to react strongly when incentives are increased even more in upcoming months.  It should be another great month for consumers looking to buy a new car, especially if you have a nice trade in.