How Important Are Seasonal Trends in the Automotive Sector?

The automotive industry has some definite seasonal trends, with peak demand occurring in the spring and fall, and lowest sales in January, February, and into the beginning of March. In the United States, car dealers often experience difficulty selling inventory during the winter months, when consumers are less motivated to brave the cold to make a car purchase.

This sometimes changes during spring when the combination of nicer weather and tax refunds are thought to spur consumer spending. Traditionally, another car seasonal trend occurs during the fall months when the new car models for the coming year come out. However, this is not always the case, as some companies have begun releasing new models throughout the year. This is an attempt by car manufacturers to boost auto sales during normally slow months.

Auto Industry

The auto industry is an important element of the entire U.S. economy. The automobile sales level is often seen as a prime indicator of overall consumer spending. Historically, the automotive industry has contributed 3% to 3.5% to the overall gross domestic product (GDP) in the United States.

The biggest changes in the automotive industry over the past several decades have resulted from two trends. The first is the success of Japanese automakers Toyota, Honda, and Nissan (originally Datsun) in making huge inroads into the U.S. auto market. As of 2020, Toyota is the second-largest automaker for the U.S. market by market share behind Tesla.

Part of Japanese automakers' success is due to the second major trend in the auto industry, primarily the result of mandates from government regulations to manufacture more fuel-efficient automobiles. Japanese automakers benefited from this trend because their cars already offered much better gas mileage than those of U.S. automakers dating back to the 1970s when Japanese cars first began to become popular in the United States. Strict government regulations on gas-powered vehicles have also increased the demand for electric vehicles (EVs), with Tesla (TSLA) leading the market in the U.S. for EVs.

New and Used Cars

The two divisions of auto sales—new and used cars—both tend to experience the same seasonal ups and downs in sales volume. Auto sales traditionally drop to their lowest levels of the year from January through early March. Traditionally, the holiday season—when consumers make large expenditures of disposable income elsewhere—contributed to making this a slow time of year for auto sales.

However, this seasonal trend seems to be changing as the auto industry began posting higher December sales starting in 2013, a trend that continued through 2019. One reason for this is the aggressive discounts and deals auto dealers have offered consumers at the end of the year in an effort to move inventory off their lots. Days sales of inventory (DSI) is an important analytical metric for auto dealers, who generally do not like to see numbers above 60 on their DSI.

The only exception to the seasonal slump in auto sales during January and February is in the market for 4x4 sport utility vehicles; these vehicles see a seasonal surge in demand during the winter.

Peak Seasons

The two peak seasons for auto sales occur during the spring, from March through the end of May, and from September through November. During these periods of peak demand, cars' average sale prices can rise by 10% to 15%. Part of the explanation for the fall seasonal upswing in auto sales is due to U.S. auto manufacturers traditionally introducing new models for the year. After peaking in November and often into December, motor vehicle sales tend to drop dramatically in January.