Bolstered by strong holiday retail event activity, industry sales were up 2.2 percent in December to close the year out at 17.33 million units, the fourth straight year that volume has topped 17 million. December’s strong showing of 1.639 million vehicle sales was the second-best monthly showing of 2018, underscoring the importance of the year-end sales push to manufacturers.
"New vehicle sales were surprisingly strong in 2018 despite late cycle headwinds from higher interest rates and more nearly-new competition in the used market," said Jonathan Smoke, Cox Automotive Chief Economist. "The key positive factor was stimulated demand from tax reform, which strengthened retail demand as the year progressed and also enabled strong gains in fleet sales." Cox Automotive is Kelley Blue Book’s parent company.
Trucks were the big reason for the volume increase by Fiat Chrysler Automobiles, which saw a 14-percent jump in sales last month and a 9-percent gain overall for 2018. Both Ford and GM were down for the year, posting respective 3.5- and 1.6-percent declines for the year. Among the top three Japanese makes, Toyota, Honda and Nissan, were down in annual sales with drops of 0.3, 2.2 and 6.2 percent respectively. Nissan’s drop was attributed to fewer fleet and rental deliveries. Subaru posted another record year, selling over 680,000 vehicles, up nearly 5 percent over 2017.
Analysts see sales falling below the 17 million in 2019, however, the industry should see numbers that continue to run in the high 16-million-unit range. According to Automotive News, Ford’s chief economist, Emily Kolinski Morris said, "Despite recent market turbulence, the data we have in hand suggests an economy that remains on solid footing heading into the new year. Consumers seem to be looking through market volatility to focus on continued positive job and income conditions."
While sales activity was up, incentives were down year-over-year in December, averaging $4,098 per vehicle, a drop of $164, according to J.D. Power. The firm also reported that retail demand was down 1 percent, while fleet sales were up 2.7 percent for the month.
The top selling vehicle in 2018 was the Ford F-Series pickup truck with 909,330 units retailed, the second highest yearly total in the company’s history and the 42nd year that it has led the pickup truck category in sales.
Transaction prices remain high
Transaction prices were up in December over the previous year by $500, hitting $35,577, a 1.3 percent increase, according to Kelley Blue Book data. The average price moderated slightly month-over-month, dropping $93 or 0.2 percent from November.
“December closed out a very strong year for new-car prices, as they rose to [a peak of] more than $36,000 on average in 2018, a 3 percent increase,” said Kelley Blue Book analyst Tim Fleming. “Despite higher interest rates and incentives remaining flat year-over-year, this was the strongest growth in transaction prices since 2013. Average transaction prices were boosted in 2018 by tax reform and low unemployment, as well as the rapid ramp-up of Tesla and its Model 3.”
Excluding Tesla from the overall average, the rest of the industry rose 2.5 percent, as result more in line with the past few years. The sales mix of cars dropping to 31 percent (from 36 percent in 2017) also played a role in rising prices, and as more automakers like Ford discontinue their car nameplates in favor of costlier SUVs and trucks, the average new-vehicle price will continue to grow.
While Tesla helped pull up overall vehicle transaction prices, the lower pricing of the Model 3 versus the rest of the Tesla lineup dragged down the EV segment’s ATP by 2.1 percent. The biggest growth by category in ATP was among luxury full-size crossovers and SUVs, which was up 3.2 percent.
The two biggest manufacturer gains in average price came from Subaru and Fiat Chrysler Automobiles. Subaru’s 5 percent jump in pricing is attributed to the strong performance of its new Ascent 3-row SUV, while FCA’s 4 percent bump came from the continued success of Jeep Wrangler and the redesigned 2019 Ram 1500 pickup.
Tesla cuts prices
In a bid to offset the halving of the federal government $7,500 tax credit for electric vehicles, Tesla cut the base price of its Model 3, Model S and Model X by $2,000. As a result, buyers will see stickers start at $44,000 on the Model 3, $76,000 for the lowest priced Model S sedan and $86,000 for the least expensive Model X. There’s no word yet from Tesla on when a true entry-level Model 3, which was promised at $35,000 would appear.
Since Tesla has delivered over 200,000 vehicles, as of Jan. 1, the federal tax credit has been cut in half to $3,750 and will drop by half again to $1,875 July 31 for vehicles delivered between then and the end of the year. After Jan. 1, 2020, the tax credit will be phased out entirely for the brand under current tax law.
GM hits EV tax cap
Also hitting the EV tax credit cap is GM. After selling its 200,000th EV in 2018, GM will see credits for its Chevrolet Bolt EV drop to $3,750 from $7,500 as of Apr. 1. Like Tesla, GM will see the credit drop by half again after six months before being phased out entirely on Apr. 1, 2020.
GM has not said if it will adjust pricing on the Bolt to compensate for the loss of the tax credit to customers. It has already announced that it will be halting sales of its Chevrolet Volt plug-in hybrid, which was also eligible for federal EV tax credits.
The rundown
As truck popularity hits new highs, the timing is right for Kelley Blue Book’s 2019 Full-Size Pickup Truck Comparison Test. We pit the Ford F-150, Chevrolet Silverado and Ram 1500 against each other.
While trucks are soaring, car sales are down significantly. Are they over as a vehicle type? A Cox Automotive Car Study says there’re plenty of life left in midsize and compact cars.
In the market for a new car? Explore these useful tips on how to get the best deal:
Kelley Blue Book’s Complete Guide to Incentives
All you need to know about leasing
