Anyone who has bought a new vehicle in recent months knows that dealer inventories are down, while prices are up. And that situation is likely to continue through at least early 2023, warns a senior J.D. Power analyst.
That’s not entirely bad news — at least for the auto industry, however — as this year’s shortages mean there’ll be strong demand for vehicles, both new and used, for some time to come, said Tyson Jominy, Power’s head of analysis for dealer sales data.
“All next year, we’re going to see very similar conditions to what we’re seeing now because even as production increases, there’s all this pent-up demand,” said Jominy in an interview.
Other shortages in the making
Automakers and auto buyers have been slammed by the COVID pandemic and resulting shortages, primarily of the semiconductor chips that have become a critical component of every modern vehicle. Manufacturers have been forced to repeatedly cut production, in some cases idling factories for weeks at a time.
There are signs the situation is improving, Hyundai Motor America CEO José Muñoz telling TheDetroitBureau.com earlier this month that his company appears to now be getting all the chips it needs. But there could be new shortages developing, especially with tires and materials like polyurethane foam.
Even if the shortages were completely resolved, manufacturers won’t be able to build back inventories very quickly.
Empty showrooms
Normally, there should be about 3 million new vehicles either on dealer lots or in transit, according to historical industry norms. Right now, however, there are barely 1 million. And they’re being snatched up as soon as they arrive from the factory. Toyota, Subaru and other carmakers report their dealers have less than 10 days of inventory, with the pre-pandemic norm running closer to 65 days.
Complicating matters, U.S. new vehicle sales will come in about 4.5 million units lower than expected because of shortages, according to Power estimates. That means “we have 4.5 million people on the sidelines” who would like to buy a vehicle but can’t find the one they want, said Jominy. So, even as production starts returning to normal, buyers will still snap up every new vehicle as soon as it rolls into the showroom.
“We’re not going to see inventories really rise until Q4 of next year,” at the earliest, said Jominy.
A new reality
For now, buyers have to get used to a new reality. They may have to settle for whatever vehicle they can find. And, even then, they’ll likely pay more. Power data show average transaction prices are now more than $44,000. That’s a 30%, or $10,000, increase from two years ago.
If there’s a positive side, actual monthly payments have risen by a more modest 12% because trade-in values also have surged to record levels, noted Jominy.
COVID and the subsequent inventory shortages may change the way Americans buy new vehicles. Buyers are spending more time online during the purchase process. Nissan, for example, has set up a web shopping site for the new Ariya battery-electric SUV and expects most customers to use it.
Build to order
Ford, meanwhile, is now offering incentives to encourage customers to custom order their vehicles, rather than try to find the car or truck they want on a dealer’s lot. The advantage to this “build to order” approach is that “you’re going to get exactly what you want,” said Jominy, and likely will have a clearer sense when they vehicle will be ready for delivery.
Going forward, he said, the pandemic’s long-term impact is likely to be that it has “changed the way people buy their cars.”