New car spending to set January record on incentives, inventory gains

New vehicle sales are set to rise in January, with consumer spending on car purchases projected to hit an all-time high for the month.

Driving the news: J.D. Power and GlobalData predict a January sales total of roughly 1.105 million vehicles, up 4.4% from last year.

• With such a big increase in sales, consumers are also expected to spend $38.5 billion on new vehicles, a record-breaking amount for January.

• High car prices are contributing to bigger consumer spending. However, average retail transaction prices have still declined 0.5% to $44,636 this month.

Behind the scenes: Last year saw rising incentives and inventory levels, factors that have continued to fuel sales in the first weeks of 2025.

• Average manufacturer discounts per vehicle are expected to jump 29.3% year-over-year to $3,226 this month, driven partly by lease deals.

• Meanwhile, dealership inventory is due to hit 2.2 million units, up 31.1% from January 2024. Better supplies mean that customers are able to find their preferred model in fewer trips, boosting satisfaction.

• Lease discounts are also helping boost consumer spending, boosting lease share by roughly two percentage points from last year to 24.3%. That said, the number of off-lease cars returning to the market this month is set to drop 36.7% from last January.

Zooming in: While sales are improving, dealers are still facing challenges, such as shrinking profit margins.

• Only a small portion of vehicles (11.8%) are still being sold above MSRP, compared to one-fifth in early 2024.

• Per-unit profits are predicted to fall 13.5% by the end of January, resting at $2,272. Dealers are expected to earn $2 billion in combined profits, down 8.4%.

Looking ahead: Even as dealers are facing profitability pressures, buyer demand remains strong. This puts the industry on track to sell more cars this year, allowing it to focus on improving efficiency.

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