Still the weirdest car market ever.
By Wolf Richter for WOLF STREET.
Stock shortages at new car dealers continue unabated and inventories remain desperately low, but the shortage is shifting as demand has shifted and supply is now piling up, say at Ram dealers, while fuel efficient vehicles are essentially sold out, and EV models have long waiting lists — as people tire of being hammered by high fuel prices.
The number of new vehicles “in stock” at dealer properties and “in transit” to dealers fell to 1.12 million vehicles at the end of June, down 70% or 2.61 million vehicles from the same period in 2019 corresponds to Cox Automotive estimates based on its Dealertrack data. On this basis, the number of new vehicles has not improved since December. For comparison: in 2019, the number of new vehicles averaged 3.66 million vehicles.
The term “stock” refers to what is “in stock” and what is “in transit”. And it may include units that have been pre-sold. A dealer’s website will typically show three labels next to the vehicles in their inventory: “in stock”, “on the way” and “sold”.
The inexorable increase in the price of new cars.
The average asking price (list price) shows that retailers are not yet in the mood to offer bargains. According to Cox Automotive, the June average list price rose 11.5% year over year to a record $45,976.
Cox also said that asking prices “started to pull back slightly” in the last week of June. So, traders may be encountering a small amount of price resistance in certain corners of the market.
Asking prices fell in January, February and March, only to reverse in April — and some of that was seasonal, as January and February are the worst months for traders when volume tends to fall after the December binge. By June, they had hit a new record, up 11.5% year-on-year. That still speaks of a hot underserved market:
The average transaction price — the price at which vehicles were sold and delivered — rose 14% year over year to a record $45,844 in June, according to JD Power data. Compared to June 2019, this was an increase of 36% or over $10,000.
At these prices, dealers made record gross profits per vehicle delivered. Including finance and insurance (F&I) sales, JD Power estimates that dealerships averaged gross profit per vehicle of $5,123, up $1,174 from June 2021.
The chart shows ATPs for December and June of each year. Before the pandemic, there was an established seasonality with ATP peaking in December but falling from there each year through June. But in June 2020, the ATP in June was level with December for the first time. And in 2021 and 2022, the ATP simply jumped from December to June, regardless of seasonality. The green line connects the December:
Lack of fuel efficient vehicles. No shortages at Dodge & Ram dealers.
Abundant Stock at Dodge and Ram Dealers: Including warehouse and transportation, Dodge dealers ended June at 90 days and Ram dealers at 81 days. The industry considers 60 days to be ideally between scarce and sufficient.
Fuel efficient vehicles essentially sold out. At the lower end of the offering in the non-luxury segments were the Asian brands with fuel efficient models that essentially sold out: Toyota Corolla, Kia Telluride, Toyota Camry, Hyundai Palisade and Kia Sportage.
At the bottom of the offering by segment:
- Hybrids, 17 days supply
- Intermediate car, stock for 22 days
- Small car: 24 days supply.
The range of full-size pickups is growing: At the top end of the top 30 best-selling models were three pickups and two SUVs: Ram 1500 (79 days), Ford Escape (69 days), followed by Jeep Compass, Ford F-150 and Chevrolet Silverado.
This is now a new inventory issue: the wrong inventory. In 2020 and 2021, pickup trucks were particularly hard to come by and everyone wanted them. But then gas prices rose, and suddenly the cost of refueling became one of the buying considerations, and pickup trucks lost their advantage. Demand shifted to more fuel-efficient vehicles.
However, due to the long and complex supply chains, automakers cannot react immediately to shifts in demand. And the supply bottlenecks triggered by the semiconductor shortage have taken on a new dimension with this shift in demand towards more fuel-efficient models, for which automakers were not prepared.
Used cars: plenty on offer.
At the end of June, the stock of used car dealers was 2.46 million vehicles, 5.5% above the previous year’s value. Compared to 2019, it was only 10% less.
But sales have been lower for months compared to 2021 and 2019 as buyers have started to resist sky-high prices. And the reach in days at the end of June increased to 49 days given the lower sales rate, just slightly above the 2019 average (48 days).
Used cars: Insane price increase is running out of fuel.
Between December 2019 and December 2021, in those two years, the average asking price for used vehicles increased by 42%, or $8,300 per vehicle, from $19,871 in December 2019 to $28,205 in December 2021, which is completely insane was, and there was resistance finally starting to kick in.
By June, the average asking price had fallen to $28,012, just below December. Drops in January, February, and March are seasonally normal, but drops in May and June are not. And by the looks of it, the utterly insane price hike may finally have run out of fuel.
But there is still no oversupply. The influx of rental fleets into the used car market has been mitigated by lost production of new rental fleet vehicles and they are slower to hand over their fleets. And wholesale prices, although down from the December peak, are still sky high. In this environment, retailers are not yet motivated to massively reduce prices in order to move the iron. But at least the price spike has run out of fuel.
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