Low Stocks of Vehicles Push Up Prices in the United States | New
The United States currently has the lowest inventory of ground vehicles since 2011, averaging 25 days of supply in May, down from 61 days in the same month last year. Demand continues to be strong following the Covid lockdown, with a seasonally adjusted annual sales rate of 18.8 million in April, one of the highest rates in the past two decades.
However, vehicle production in the United States is on the decline due to the semiconductor supply shortage, which is on top of last year’s production shortfalls due to Covid-19-related shutdowns.
“Last year in North America, we produced 3.5 million fewer vehicles than in 2019 [16.8m] and we’ll probably be producing 1.5 million less this year, ”said Patrick Manzi, Nada chief economist, at this year’s Finished Vehicle Logistics North America Live conference.
This shortfall has hit Ford, GM and Stellantis the hardest and dealers cannot sell enough of the popular models they make, such as crossovers (CUVs), SUVs and pickup trucks.
“Dealers like to carry a lot of it because customers are looking for very specific options and can offer them to them. Unfortunately that’s not the case – the vans are sold before they get to the lot, ”Manzi said. “You want to have inventory available to show your loyal customers and it’s difficult when all you’re offering is a sold order. “
It was a similar situation for Toyota, according to Brion Stapp, principal dealer at Stapp Interstate Toyota.
“We have transport trucks coming in several times a week, but 41% of our entire pipeline for the next three months is pre-sold,” he said. “While these trucks arrive daily, we unload them and put them directly into the inventory sold for our customers to take delivery. ”
What the dealers really want is better visibility into what’s going on in the assembly plant pipeline, which the outbound logistics industry could help.
“The more information you can provide to these dealers, the better, and the sooner the better,” said Manzi. “They are tired of hearing about delays and that a van is sitting in the parking lot waiting for a microchip. Anything that can provide certainty as to when they are going to get the product will help and be key and help the relationship. [with the customer].
Currently, pickups, CUVs and SUVs account for around 77% of vehicle sales compared to 23% for sedans. The CUV segment in particular accounts for around 46% of sales in the United States and customers now have to compromise on options, such as color and finishes, due to lack of availability. This is also hampered by the reduction of the vehicle allowance from several months to several weeks.
“Toyota would allocate vehicles three months in advance and with that we can make changes, like color or other options for the customer, but this is now reduced to six to seven weeks before being allocated”, Stapp said. “The pipeline looks different and we lost the opportunity to change the order details. “
Dealer sales are threatened when customers cannot find the car they want to buy, although automakers have been successful in reallocating production to ensure that the most profitable and popular models reach end customers. . Stapp said that despite the high revenue and the shorter allocation period, Toyota made sure there was a clear line of communication with the dealership on what was allocated, helping to keep promises. made to the end customer.
Nonetheless, this pressure on inventory pushed up the average transaction price of a new car in the United States. In April of this year, that figure was just under $ 40,000 for a new car and about $ 23,600 for a used car, respective increases of 2.5% and 6.6% over the previous year. to last year (see table).
At the same time, the sales incentives are well below average. In May of this year, figures from analyst JD Power showed the average incentive price per unit to be around $ 2,800, after falling by around $ 2,000 from the same month in 2020 (when it was closer to $ 5,000). Given the strong incentives put in place following the closures caused by the Covid pandemic, including 0% interest over 84 months, this is not surprising, but even in May 2019, the average incentive was closer of $ 4,000.
There is some consolation, according to Nada, in the fact that interest rates on finance are currently low and consumers have better equity right now. The average level of loans has also increased.
Fleet and remarketing
Fleet sales remain depressed in comparison, in part because automakers are going the extra mile to allocate production to retail customers. The resurgent demand from the rental sector is not being met and deliveries are late.
“Fleet sales have been constant with 3m units [2019: 3.3m] and between 17% and 19% of sales in any given year, according to Manzi. However, last year that figure fell to 2.1 million due to cancellations of rental car fleets during the Covid lockdown. Manzi estimated fleet sales at 2.5 million this year, with a full recovery delayed due to the semiconductor shortage.
As a result, rental companies need to rely more on the used car market, while at the same time, dealers hang on to vehicles rather than resell them.
“Many vehicles that would have flowed back to auctions were not last year [and] most dealers who take back lease returns require them to retail on their lots.
This has pushed up the average price of used cars.
“It’s difficult to buy vehicles at auction and you pay a higher wholesale price,” Manzi noted. He said the rise in used vehicle prices is expected to continue over the next 18 months and stabilize at a higher level than before. However, one potentially positive outcome is that new vehicle leases are becoming more attractive in comparison.
Looking ahead, Manzi predicts that inventory levels and prices will begin to balance out, with June being last month for record inventory and high retail prices. He said production would gradually resume to meet demand once a sufficient supply of semiconductors returned in the second half of the year.
“I’m not sure we’re necessarily going to rebuild everything this year, but the sooner they can produce at full capacity the better,” he said, estimating production would drop to 16.3 million a year. next.