April showers brought … strong vehicle sales.
At least that’s what Cox Automotive reveals in its latest report, noting it expects once April is finished new-car sales figures could be on pace to sell about 16.5 million vehicles in 2021.
That’s actually pretty good considering all the problems the auto industry has right now, said Charlie Chesbrough, senior economist, Cox Automotive.
Right now, Cox believes that April new vehicle sales will amount to about 1.36 million. Which is well above the 640,000 sold in April of 2020 — the first complete lockdown due to COVID month. A better comparison would be looking at April 2019, Chesbrough said. This year’s sales are about 30,000 or 2.3% better.
Returning to the familiar
The new numbers indicate that vehicles sales are normalizing. These numbers further show that the out-of-the-ordinary vehicle sales numbers seen during the past year are becoming a thing of the past.
April 2020 sales indicated that the year’s vehicle sales might be as low as 8.7 million. But thanks to government support and increased consumer demand for new vehicles, this year should be much better.
“The robust sales pace is the story for the industry right now, as strong retail demand continues, even though a downtick from March is expected,” said Chesbrough. “There is little reason to expect buyer interest to wane anytime soon given recent economic growth rate expectations and improvements to consumer sentiment. But inventory is a huge problem in the vehicle market — a lingering result of the COVID-19 shock last year.”
Overall, demand for new vehicles in April meant strong sales for the month, Chesbrough said.
OEMs struggling to meet demand
But demand is only half the sales equation. Supply problems could result in sales in May or beyond hitting a brick wall.
Thanks to production shutdowns due to health and safety issues and parts shortages, especially computer chips, many new-car dealers could find themselves running out of inventory in May or June.
Simply put, you can’t sell what you don’t have.
“April has given up strong sales numbers indicating a robust demand for new cars,” Chesbrough said. “When we were putting together our April sales estimates we thought we were being optimistic, but others have issued reports indicating even higher than expected sales.
“But we’ve started hearing from dealers who say they might be running out of inventory in the next couple of weeks. That’s something serious to consider.”
Changing the way Americans buy new vehicles
This lack of inventory could even change the way Americans buy vehicles, Chesbrough said.
Normally, people go to the dealership and if they know what they want and have the money can drive off the lot with a new car that very day.
“It’s different in Europe, for example,” Chesbrough said. “You order the car one day, and it arrives at the dealership for pickup six or seven weeks later. We might start seeing that here because dealers just won’t have inventory on hand.”
The result could be that dealers keep a lean supply of inventory at their dealerships.
That scenario is a real possibility, Chesbrough said. New-car inventory on hand at dealerships as of the end of April 2021 is between 1 million and 1.2 million units lower than the same time in 2020. This is happening at a time when demand for new cars is much higher than last year.
Potential for profit is there
The news isn’t all bad for dealers, however. Right now, they are seeing a lot of cars leased in 2018 coming back to their dealerships. If these vehicles are in good shape, dealers will have no problem selling them at profitable price.
But it could be bad news for consumers. People who normally enter into a new lease once the old one is up might
find that dealers don’t have any new cars to lease to them.
“If your lease is up, you’d do well to consider taking advantage of the first-right to buy your lease vehicle clause,” Chesbrough said. “There might not be anything new to lease or buy, so actually taking advantage of your rights and buying the car that would normally go off-lease and return to the dealership could make great financial sense. At least it’s something to consider.”
Strong economy helps demand side
Chesbrough said the day Cox released its April sales forecast numbers, the federal government released figures showing that the national economy was growing at a rate of 6 percent.
That’s a further indication that demand for new cars will remain strong.
“One thing that has surprised me is seeing the demand for new vehicles during the COVID crisis,” Chesbrough said. “The public as decided that spending $40,000 on a new car during a pandemic is the responsible thing to do.”
But what else do people who have kept their jobs have to spend money on? People can’t travel, so expensive vacations are out. They can’t go out to dinner and there’s little reason to spend money on fancy clothes.
So it makes sense that people will want a new car, which can still represent freedom in a time of quarantine.
“This is April,” Chesbrough said. “Things can look different in May. But if dealers can get supply to meet demand, they’ll do very well. The big question will be ‘is can OEMs make the vehicles to meet this demand?’ No one knows that.”