According to industry experts, manufacturers in the United States are dealing with the lowest inventory levels in over a decade, but this may not be a bad thing because a combination of strong demand and a lack of vehicles at dealerships is driving new car prices and profits to new highs.
What happened was this: According to automotive research firm J.D. Power, the U.S. new car inventory at dealerships was just over 1.5 million units in June, a month when dealers generally store 3.5 million to 4 million vehicles to support the summer selling season.
Customers must pay more since there are fewer vehicles to select from, and record transaction costs are bringing in even more profit for automakers and dealers.
“Transactions are likely to close over $40,000 in June,” said Tyson Jominy, vice president of statistics and analytics at J.D. Power. “This would represent two straight months of all-time transaction price records.”
Inventory shortages result in higher prices. According to J.D. Power, with current inventory levels, 76 percent of all vehicles have a negotiated price near or above MSRP. Furthermore, dealers are reducing incentives, with average spending down $2,355 per unit in June compared to $3,966 in June 2019, when the sector remained stable.
“According to our projections, inventory will not return to levels that require conventional consumer incentives until Q3 2022,” Tyson said, adding that demand is strong but production is overburdened.
Automakers in the United States are expected to release second-quarter sales volume figures later this week. Edmunds estimates that 4,468,791 new automobiles and trucks would be sold in the second quarter of this year, up 51.6 percent year over year and 14.8 percent more than the first quarter.
It’s worth noting that the COVID-19 outbreak resulted in fewer sales for major cars last year.
Semiconductor Shortage Remains: While a faster-than-expected vaccine deployment in the United States bolstered April sales, a global chip shortage continues to stymie attempts to expand production, forcing automakers to prioritize their most profitable models, such as pickup trucks.
“Unfortunately, the chipset and inventory shortages really came to a head and outstripped supply in June,” Edmunds executive director of insights Jessica Caldwell said.
“While this isn’t a problem that will go away anytime soon, the silver lining for manufacturers and dealers is that customer demand remains high, and shoppers are plainly prepared to pay inflated prices for the automobiles they desire.”
Also see: Following in Ford’s footsteps, GM has increased its five-year EV investment target to $35 billion.
What You Should Expect: According to Edmunds, General Motors (NYSE: GM), the largest manufacturer in the United States by volume, could see second-quarter sales rise 40.5 percent year over year to 692,169 vehicles, and 7.7 percent quarter over quarter.
Toyota Motor Corp. (NYSE: TM) is projected to announce a year-over-year increase of 72.5 percent to 686,539 automobiles, as well as a sequential increase of 13.8 percent.
Ford Motor Company (NYSE: F) is the only major manufacturer forecast to post an 8% drop in quarterly sales on a sequential basis to 479,538 vehicles, compared to a 10.5 percent increase year over year, the lowest among peers.
Ford CEO Jim Farley said earlier this month that the carmaker is counting on low stocks and that the company aims to “run our inventories historically lower.”
Also see: Ford CEO Says Chip Shortage Has Changed ‘Normal’ Forever, and the Automaker Will Maintain Low Inventories Post-Crisis
According to J.D. Power, light-duty pickups had a 44-day supply in June; nonetheless, the segment generally has 100 days or more supply in most months, and pickups are an area where such low numbers may not be desirable.
“There are customers waiting for certain trucks on the sidelines. Attempting to persuade people to adopt a new way of purchasing vehicles would necessitate a significant amount of effort. Will Ford and other truck manufacturers be able to maintain their current production levels if supply tightens? It will have to wait and see “Tyson remarked.
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