June new vehicle sales expected to take hit from cyberattack on dealer software
New car sales in June took a wild ride, and next week, when most automakers report second-quarter sales, the figures will reflect the impact of a cyberattack this month on software used by many auto dealers, according to two forecasts this week.
For consumers, June was a rather good month because the average transaction price paid for new vehicles is lower than it was this time last year and the incentives carmakers offered on their products are higher, according to a joint forecast from J.D. Power and GlobalData released Wednesday.
Still, a cyberattack on Chicago-based dealership software provider CDK Global forced CDK to shut down most of its systems across the country for its dealership customers. It left about half of the nation's car dealerships struggling to operate, forcing some to return to the days of pen-and-paper. The result has J.D. Power and GlobalData forecasting that U.S. retail sales in June across all automakers will be about 5.4% lower than they were in June 2023.
“Because of the disruption to dealer software systems, June sales will not be reflective of actual consumer demand for new vehicles," Thomas King, president of the data and analytics division at J.D. Power said in a statement. "Instead, a significant number of sales that would have occurred in June are now likely to occur in July."
The group that organized the attack on CDK demanded tens of millions of dollars in ransom, Bloomberg reported on Saturday. CDK intends to pay the ransom but discussions are subject to change, according to Bloomberg's report, which cited a person familiar with the situation. Meanwhile, CDK started to restore systems used by 15,000 auto dealers nationwide, Reuters reported Sunday.
"While considerable uncertainty exists around when these systems will return to normal — under the assumption that they return to normal by month end for most dealers — June total sales are projected to be between 1.33 and 1.27 million units, a 2.6% to 7.2% decrease, respectively, from June 2023," King said. "However, it should be noted that a significant range of sales outcomes are possible due to the uncertainty about exactly when system outages will be resolved and what countermeasures dealers put in place to transact sales through the close."
General Motors and Stellantis are scheduled to report their second-quarter sales on Tuesday, and Ford Motor Co. on Wednesday.
Pandemic prepared dealers for adversity
Before the attack on CDK, a forecast for total sales, which includes retail and fleet sales, was tracking at 1.41 million vehicles, King said. So while the effect of the disruption is significant, it will not affect overall demand in the long term, he said.
"Sales will be delayed," King said. "If there is one thing that the pandemic demonstrated to the auto industry, it’s that dealers are very adept at dealing with adversity and have been effective in rapidly identifying ways to deliver vehicles to buyers.”
Automakers will benefit from fleet sales in June, which King projected at 20.5%, up 0.6 percentage points from June 2023.
How much is in inventory and what are the prices?
Car dealers will have about 1.8 million vehicles in inventory by the month end, King estimated, which is a 4.5% increase from May and a whopping 41.6% increase from June 2023. More cars in stock means customers can buy directly off a dealership's lot. The average time a new car remains in the dealer's possession before sale is expected to be 45 days, up from 28 days a year ago, King said.
King said the average new-vehicle retail transaction price is declining compared with a year ago as manufacturer incentives rise, retailer profit margins decline and availability of lower-priced vehicles increases.
Average transaction prices in June are trending toward $44,857, down 3%, or $1,372, from last year. The combination of slightly higher retail sales and lower transaction prices means that buyers are on track to spend nearly $44.6 billion on new vehicles this month, which is 6.5% lower than a year ago, the fourth highest June on record, King said.
Prediction for U.S. sales for the quarter
On Thursday, Edmunds.com also released its forecast for U.S. sales for the full second quarter and it said sales will likely be flat compared with a year ago.
Edmunds forecasts that 4,112,804 new cars and trucks will be sold in the U.S. in the second quarter, which will be a 0.1% increase from the second quarter of 2023 and an 8.5% increase from the first quarter of 2024. But Edmunds also noted the attack on CDK will harm results.
“Despite elevated interest rates, new vehicle sales looked ready to pack some punch in Q2 thanks to healthier inventory levels and the revival of summertime incentives. But the CDK cyberattacks have thrown a monkey wrench into sales during the second half of June, affecting what is arguably one of the most lucrative and busiest times of the month and quarter for dealerships,” said Jessica Caldwell, Edmunds’ head of insights, in a statement.
Caldwell said the impact of the attack on CDK will vary from dealer to dealer, but it is "another speed bump on the automotive industry’s" recovery post-COVID.
Predictions for the Detroit Three
"The good news is — unlike other black swan events that the industry has contended with in the past — sales shouldn’t be lost or severely deferred, but rather pushed into the third quarter," Caldwell said.
Edmunds forecasts GM's second-quarter sales will come in up 3% compared with the year-ago quarter, Ford up 3.4%, but Stellantis down 20.8%
Still, sales through the rest of the summer should be strong and consumers shouldn’t need to move up timelines or change how they’ve been shopping for vehicles, Caldwell said. Just be diligent about researching and budgeting, especially when financing purchases.
“Unlike previous years when inventory was extremely limited and shoppers had to act right away to get the vehicles they wanted, consumers who don’t immediately require a new vehicle have the luxury of time, so use it to your advantage when shopping around and searching for favorable interest rates,” said Ivan Drury, Edmunds’ director of insights.
But if you need a new car now, don't fret, Drury said, the market is dramatically better compared with last year, "but we’re still a ways away from any major summer selldown events or 2025 model year vehicles."
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“Rising inventory means fewer vehicles are being pre-sold by retailers, with more shoppers able to buy directly off dealer lots. This month, J.D. Power forecasts that 32.9% of vehicles will sell within 10 days of arriving at the dealership, down from a peak of 58% in March 2022. The average time a new vehicle remains in the dealer's possession before sale is expected to be 45 days, up from 28 days a year ago.
“Manufacturer discounts are expected to be similar to May (down $65 per unit) but have materially increased from a year ago. The average incentive spend per vehicle has grown 51.2% from June 2023 and is currently on track to reach $2,625. Expressed as a percentage of MSRP, incentive spending is currently at 5.3%, an increase of 1.8 percentage points from a year ago. Increased spending of current model year is nearly offset by lower volumes of prior model year vehicles with higher spending.
“One of the drivers of higher incentive spending from a year ago is the increased availability of lease deals, and leasing is growing accordingly. This month, leasing is expected to account for 22.7% of retail sales, up 2.7 percentage points from 20% in June 2023.”
After rising consistently during the past few years, average monthly loan payments are stabilizing. The average monthly finance payment this month is on pace to be $727, down $1 from June 2023. The average interest rate for new-vehicle loans is expected to be 6.99%, flat from a year ago.
So far in June, average used-vehicle retail prices are $28,208, reflecting a decrease of 6.3%--or down $1,882—from a year ago. The decline in used-vehicle values is translating to lower trade-in equity for owners, now trending towards $7,770, which is down $1,552 from a year ago.
“Looking forward to July, we expect the dealer software system disruptions to be rectified and most of the lost June sales recovered within the month. Also, a robust start to July is expected due to the extended July 4th holiday weekend.”
This article originally appeared on Detroit Free Press: New car sales in June to take hit from CDK cyberattack on dealers
