The New Jersey new vehicle market was in good shape at the start of last year. New retail registrations in the state during 2019 approached 520,000 units based on historical standards and were well above average. And 2020 got off to a good start as well, with registrations declining by less than 5% in January and February versus strong year-earlier results. Auto Outlook’s forecast at the time was for sales to drift lower but remain strong. After seven years of increasing registrations following the recessionary low-point in 2009, the market was due for a mild downturn.
The projected decline in 2020 new vehicle sales was not expected to be pronounced or prolonged. The market was not overheated at the beginning of the year. The reason for this traces back to the steep decline in sales that occurred during the Great Recession of 2009. Registrations in the state remained below 450,000 units for five consecutive years between 2008 and 2013. Accumulated, pent-up demand reached record high levels during this period, and it took until 2019 for all of these delayed purchases to occur. Hence, the forecast for a slight decline with sales remaining strong in 2020. The forecast carried with it a common caveat: “barring any unforeseen events …”
The COVID-19 pandemic qualified as an “unforeseen event.” New retail, light vehicle registrations in the state fell by 53% in the second quarter of 2020 versus a year earlier, with an unprecedented 85% fall in April.
Encouragingly, the market bounced back following the second quarter decline. At the onset of the pandemic last spring, an annual drop of 25+% for 2020 seemed within the realm of possibility, but the market finished the year off 19.6% from 2019. It’s hard to envision a scenario where a double-digit percentage decline in sales can be interpreted as good news, but in this case, it was. In the second half of the year, new vehicle registrations were off just 7% from a year earlier, an impressive result during a once-in-a-lifetime global health crisis.
So, where does the market go from here? Based on the way things look now, sales have nowhere to go but up. Pinpointing how high the market will go and how long it will take to get there is tricky, but key forecast determinants are resoundingly pointing to a solid rebound in sales. Here are four factors that should pace the recovery:
Consumer affordability is strong. Very low-interest rates and elevated used car values have combined to make a new vehicle purchase a viable proposition for many consumers. Increasing household incomes (resulting from rising wages and government stimulus programs) have also boosted affordability. However, as the pandemic has lingered, many households have used increasing incomes to build their savings rather than increase spending. Consequently, the savings rate has reached levels not seen in over 20 years. When COVID is less of a concern and the economy re-opens, many economists anticipate a surge in spending, which will include the purchase of new vehicles. Finally, some analysts have raised concerns about rising vehicle transaction prices as a negative for affordability, but that’s more a symptom of consumers leveraging strong affordability to purchase more expensive vehicles that offer features and equipment that they desire.
Pent-up demand has returned. New vehicle registrations in New Jersey during 2020 were about 90,000 units below expected levels, and this year’s total will also be lower than anticipated. These postponed purchases will occur in the future and boost sales this year and in 2022.
Employment will be increasing. Total employment in the state at the end of 2020 was down 7% versus a year earlier. As the year progresses, the lifting of business restrictions will allow many New Jersey residents to return to work. Also, the expected rebound in retail spending will fuel employment gains. But the return to full employment could take a while. Most economists expect the labor market’s recovery to proceed at a slower pace than the general economy. By the end of 2022, the expectation is that the labor market could be nearing full employment.
The impetus for vehicle ownership has been given a boost due to the virus. The ability to go where you want, when you want, in your own “personal space” are unique attributes of private vehicle ownership, and the virus has firmly established these virtues in the minds of many vehicle shoppers.
The news is not entirely positive, but most of the negatives are related to vehicle supplies, not consumer demand. Factories were just starting to get back to full production by the end of 2020, and then the chip shortage caused slowdowns and factory closures during the past few months. Inventories are predicted to remain relatively lean until at least the end of the third quarter, which will put a lid on how high the market can go.
Auto Outlook’s latest 2021 projection is for the state market to recover about 1/3 of the lost sales in 2020. That would put this year’s total at around 460,000 units, a 10% improvement over 2020. The two salient factors that will dictate the sales recovery pace are the progress in vanquishing the virus and how long it takes for the labor market to return to full employment. If COVID is a non-factor by early next year and total employment in the state has returned to pre-pandemic levels, new vehicle registrations in 2022 could approach the total in 2019, with further improvement likely in 2023.
Jeff Foltz is the owner and editor of Auto Outlook, Inc., a data analytics company focused on the automotive retail industry. He can be reached at 610.640.1233 or, via email, at email@example.com.