I follow industry trends and that includes quarterly sales. But it’s been a real struggle lately to make sense of the numbers. Industry cheerleaders say that the manufacturers are endlessly struggling to meet pent up demand due to chip shortages, but then why are inventories steadily marching upwards? Ford reported a 51 day inventory at the end of June, almost in line with an ideal inventory of 60 days. The Silverado 1500 has a 50 day supply, F150 has a 55 day supply, and the Ram 1500 has a 75 day supply.
Of course the cars that are hot in demand, mainly Asian brand sedans and compact CUVs are still hard to find, topped by the Honda HR-v with a 13 day supply and the Corolla with a 14 day supply.
Sales overall fell 18.5% for the first half of 2022 but average transaction prices (“ATP”) rose to a record $44,670. That’s a bit hard to explain. The model trim mix must be higher than ever, among other things.
One thing is for certain: lower income buyers are being priced out of the market.
Here’s the sales number for Q2 and the six months of 2022 to date. I prefer to focus on the 6 months 2022 to 20221 comparison, and there’s a few interesting trends. GM is the laggard of the Big 3, down 17.8% YOY; Stellantis is down 14.7%, and Ford 8.1%. But then Toyota is down 19.1% and Honda a whopping 39.3%. I assumed that the chip shortages were either getting a bit better or certainly no worse. What’s really going on?
Of the big volume brands, only Ford (-7.9%) and Hyundai-Kia (-12.7%) beat the market overall. The fact that the luxury brands did significantly better makes me wonder how much it really is the chip shortage holding back volumes. BMW was down 10.3%, and Mercedes hadn’t reported yet. But Audi was down 31.4%, Hmm. Of course Tesla beat the trend, up 47.4%, beating BMW overall, and quite likely Mercedes to take the premium brand crown.
So why were sales so consistently better in 2021 than so far in 2022?
Well, GM did say that they’re sitting on 95k vehicles that are missing certain components, and expects them to be released in the second half.
The pandemic has created a sea change in the industry, and it’s hard to get a read on what’s really driving things. But when it comes to profits, thanks to drastically lower incentives, higher trim mixes and other factors have been resulting in stellar results, so far. But then the Big Three’s labor contracts were written several years ago, locking in low rates, but there’s signs that the next contract negotiations are going to be challenging.
Analysts have had to reduce their full-year 2022 sales forecasts repeatedly. They started the year predicting sales of some 16.5 million, and now are calling for as little as 14.3 million (True Car).
Supply varies widely by brand and model and region. Kia, Honda, Subaru, Toyota, Lexus, Land Rover, BMW and Porsche had the leanest supplies last month, according to Cox Automotive, while Ram, Volvo, Dodge, Jeep, Audi, Buick, Cadillac and Infiniti had the highest days-supply. Here’s a chart of the top 30 nameplates and their respective days’ of supply.
Asian brands dominate the list of those in greatest demand, including a number of sedans.
Not surprisingly, incentives are very low, and 25% lower than last year. That suggest that no one is yet feeling a reduction in demand, and that the inventory buildup is still seen as a good thing.
We’ll leave the best for last: Average Transaction Prices. They’re up 15% YOY for Q2, and averaged $44,670. Seems like only yesterday it was a big deal when they hit $35k. Some 13% of new car buyers in June committed to monthly payments in excess of $1000.
Autonews’ coverage of Q2 sales ended with these quotes by two key industry analysts:
I’m not sure I can add much. Like so much during this pandemic, what used to be taken for granted cannot be any longer. It’s a changed world and auto market.
Not surprised by the price increase for the Kia and Hyundai.
They are everywhere in my part of the woods. Similar to the situation of Nissan & Toyota in the early 80’s. Reputation for reliability and what used to be good value for the money.
Now, you can’t touch a Telluride for less than $5 over original sticker, and that’s a used unit.
Some folks are going to be way underwater when it comes time to trade in in the next few years.
Also, I feel there will be a ton of repo cars on the market in the next few quarters. With stimulus checks running dry, folks gonna find it hard to make those $850 monthly payments.
My take is that car dealers, like any other businessmen, try to make hay when circumstances combine to allow them to do. In the current environment, that would mean to keep trumpeting shortages (real or not) and make extra profit, all the while apologizing that “it’s not our fault”. They probably look at it this way – up until two years ago, competition was cutthroat and it was hard to make a profit. Now that things have changed, take advantage of it while they can. Simple human nature.
Are you implying that auto dealers might actually not be truthful when explain the market situation to customers? I am shocked, absolutely shocked.
OK – we’ve been through this before. What happens when a need goes unfulfilled? In the 1970s, when inflation hit, we saw new imports coming in and establishing a US market presence. I easily remember when Hyundai and Kia were the cheesiest wheels to buy affordably.
So where will the new cheap wheels roll in from? India? China? The US manufacturers will bring in some? Ford already has Indian Ecosport and Turkish mini-truck experience – will we be seeing new cheap wheels to meet that need somewhere?
So where will the new cheap wheels roll in from? India? China? The US manufacturers will bring in some? Ford already has Indian Ecosport and Turkish mini-truck experience – will we be seeing new cheap wheels to meet that need somewhere?
Ford is shuttering it’s Indian operation, as GM already did. Part of their cherry picking the most profitable markets. Ford has also withdrawn from Brazil. iirc, Brazil is the forth largest car market in the world.
Relations with China may forestall product from that country, but I could certainly see Mahindras and Tatas on US roads. Technically, we already have Tatas here, dressed up as Range Rovers.
The US big three have a long established record of being short sighted. When someone comes into the market and eats their lunch, they cry to the government for protection and bailouts. So far, their business model has been working for them.
So much misinformation. Ford did not withdraw from Brazil or India, it no longer manufactures there. That’s not the same as leaving the market.
It’s comforting to know that no Asian automakers have asked their governments for bailouts and help, right? Lol OH but it’s so much more fun to paint it as the inept Americans and the skillful Asians. The ones who can’t compete with our best selling trucks, the ones who take decades to match our SUVs, and the ones heavily reliant on sedans that, despite the narrative here, are quickly falling out of favor.
John, they have left the market, period. Given India’s massive import duties on cars, Ford has nothing to sell there. Go to their home page: the one with “cars” is now dead. They only offer service, for the time being.
https://www.india.ford.com/
While fullsize pickup marketshare remains elusive for Toyota and Nissan (currently Titan apparently won’t be replaced), they own the midsize market. And their compact and midsize CUVs own the market as well.
Ford is unfortunately 2 or 3 faulty launches away from 2nd tier status. That seems to be their MO for the last 7-8 years. The F-150 is their blue chip, and if that gets tarnished they’re done.
The Maverick is a smashing success. I’m even considering one myself once the market settles down and inventory grows. But I won’t lie when I say I can’t wait for the Japanese and Korean brands to come out with their own versions of compact hybrid trucks.
My wife and I are considering a Maverick as well, but if you want one, it’ll be 2023 at least.
As to the competition from across the Pacific, the Koreans have countered the Maverick with their own Hyundai Santa Cruz.
https://www.hyundaiusa.com/us/en/vehicles/santa-cruz
The Toyota RAV4 is the #1 selling vehicle globally. The F150 isn’t even close in that race. The F-series as a whole (F150,250,350,450) which is at least two completely different vehicles) is closer but does not exceed it.
The Maverick is a “success” as far as DEMAND goes which does zero for anyone when the supply is not available. Actual sales numbers seem relatively low. The “too good to believe” publicity leader (i.e. the XL Hybrid for $20k + destination) is heavily supply limited and looks to remain that way for quite some time to come, although some have in fact been sold/delivered. And as you indicate there is nothing stopping the rest of the market from offering a competing product in the meantime unless they decide that at that advertised price there is zero business case for it. After all, Ford cancelled the Fusion sedan selling in excess of 200k units per year due to it not making enough money. A $20k hybrid pickup would not seem to be more profitable, certainly no cheaper to build. The various Maverick configurations seem to be priced lower than the various Fusion models were.
My understanding of the Maverick, is that it is limited by factory space at the plant in Mexico. The plant builds Maverick and Bronco sport. They have a total capacity of 300k units per year. Since the Bronco sport has higher transactions Ford seems to be keeping at least 60% of production as Bronco sport. So that means Maverick is limited to a little over 100k units per year. Last I heard they were running just under 10k a month.
For pricing various articles and social media sources seem to indicate in order to meet price point it has to be made in Mexico, and it was designed with the low base price in mind. Basically most cars are designed around the expected top selling trim the higher and lower trims are made around it. This effects things like sound deadening materials, interior attachment points etc. In order to hit the price point Ford designed all the trims around the base trim to keep pricing as low as possible. There was an off the record comment from one of the engineers on social media last year that basically stated the maverick was much cheaper then Fords recent cars as it was held to a lower standard then cars for NVH and touch points, material quality in the interior etc.
I’m actually a bit shocked by how many steel wheeled Mavericks I see actually. They sell more Base versions then I think they were expecting too.
Regarding the Maverick, that base truck certainly isn’t there for the profit on its own. It is there for the shock value in advertising, to keep fleets happy, not to sell to retail customers in any great numbers. Ford did restrict the XL Hybrid to order only, none were supposed to be ordered for the lot. (Side note the nearest O’rielly’s just put one into service a couple of weeks ago).
Too much data makes my head swim.
Last week I was talking to a fellow who owns a heating and cooling service company; he was installing a furnace and A/C unit that my neighbor ordered 7 or 8 weeks ago. He said: “I can’t believe there really is a shortage of these units; I bet they are stacking ‘em up in a warehouse somewhere claiming supply chain or chip issues, and then releasing them slowly at greatly marked up prices”.
I said: “You think they’d really do that, and slow down their own sales?”
His reply: “What part of “greatly increased prices” don’t you understand?”
Of course, maybe he was the one increasing prices, but I had no way to confirm it.
Also, your day’s supply of top 30 nameplates chart could also be a reverse MPG chart with the most fuel efficient vehicles having the fewest days supply (with some exceptions e.g., 4Runner) and the gas burners having the most.
But, with crude oil prices falling to or now near 2 digits, we will soon see lower prices at the pump. Right?
Pump prices are already falling (albeit slowly – Rockets and Feathers, you know) here in Maryland.
But that’s a normal pattern now. The peak always seems to be around Memorial Day and then it starts to go down by the Fourth of July.
The CFO of VAG made the clearest expression yet of the industry trend several weeks ago. He, in effect, said they don’t care about volume, they don’t care about market share, they only care about escalating ATP and GP. Pursuant to that end, VAG will discontinue the lower priced 60% of their IC powered line in the next few years.
Other automakers have not been quite so blunt, crying, instead, about the smaller profits of lower priced cars, while responding to questions about affordability with a Marie Antoinette attitude of “let them buy used”.
The Sloan model of “a car for every purse and purpose” has been replaced by cherry picking the most profitable models in the most profitable markets, and telling their former customers that can’t pay for the new business model to pound sand.
How exactly is “days of supply” defined? If demand has changed/dropped, and days of supply are high, does that just mean the supply consists of models or configurations that no one wants?
My understanding is days of supply is the average number of days the dealers in the US could keep selling a model before they would need a resupply. So if dealers sell an average of 150 Rav4s a day (combined) and there are 1500 on lots around the country you have a 10 day supply.
But this can get screwed up by having un-popular versions on lots. If 500 of those 1500 are some trim no one wants then they can drive down the sales numbers increased the days of supply.
This is a fascinating topic. My read is that the reason things don’t seem to make sense is that there are a bunch of factors going on at once, with some of them cancelling out others. The issues that I see:
1. The Pandemic is not one of them. It is over. Unless you work for the government or academia or live in a deeply blue city. Out here in the midwest, even in a moderately large city like Indianapolis, life is essentially back to normal, except that you will see maybe 10% of shoppers at Costco wearing face masks.
2. Chips – this one is interesting. I have long suspected that the chip thing has hit some manufacturers harder than others, due to pre-existing supplier relationships. I am guessing on this, but I have suspected that the Korean manufacturer(s) probably benefits at least some from the kind of interlocking supplier relationship that the Japanese were once known for. US companies and their just-in-time inventories supplied from off-shore at the lowest prices probably got hit the worst.
I think the chip shortage definitely exists, and that manufacturers who cannot get enough to build a full lineup are quietly increasing production of high end models (or high end brands, if they have multiples, such as Hyundai/Genesis). I drive past a Hyundai/Genesis dealer twice daily, and they seem to have many more new Genesis-es than I see other brands at most competitor’s lots. The Mercedes dealer is really thin here.
3. The economy – my read is that we are on the leading edge of either 1974 or 1980. Inflation is rising, interest rates are rising, and consumer confidence is dropping. Many believe we are already in the early stage of a recession, no matter what the current Administration says. This will hit the low/middle parts of the market the hardest, and the high end less so. If not for supply constraints, the incentives would be starting to gallop right now. But if you don’t have enough cars to sell, why discount?
4. Gas prices. It is 1980 or 2006 all over again for gas prices. Big stuff is starting to languish and small stuff is again popular. Sedans typically get the best gas mileage, so that is where buyers are looking. The last 6-8 years have seen a lot of gas hogs sold, and a lot of those buyers would love to trade them in on something less thirsty. But again, they may be stuck. New cars are hard to get and used cars are consequently in short supply too. Every dealer in my area has a lot chock full of late model used cars. Chrysler must have had a lot of lease returns going through auctions in the last 6-10 months because every dealer near me is loaded with Ram trucks, big Jeeps, Chargers and Challengers.
So, it’s a mess. Gas prices should be shifting demand to smaller cars, but manufacturers are still pushing big ones in a supply-constricted market. Interest rates and a looming recession should be juicing incentives, but the supply constraints are counteracting that. Within the last 6 months a neighbor got a call from the guy who sold him a 4 Runner a few years ago, offering him a ton for it. David agreed if he could get a new one, and was told that it was on a boat and would be available about 6 weeks out.
The gas prices and economic trends have been accelerating, but the chip shortage has not been resolving. The market is really a confusing mess right now.
One last side point. Some of those price increases are inflation, some of them is real price increases. Inflation is a money phenomenon that reduces the value for dollars all through the economy, and because things are priced in dollars, those prices go up. It is as if someone changed the meaning of a degree as measured on thermometers. Water would then boil at 240F, but only because we are measuring in inflated degrees.
At the same time, the real market for cars is causing price changes too, which would be happening even without inflation. On the ground, it is almost impossible to distinguish which is which, but it is crucial to understand that both are happening – sometimes one will cancel the other out to some extent, sometimes one will exaggerate the other.
1. The Pandemic is not one of them. It is over.
Not in places like China where a lot of parts and chips are made. When Shanghai locked down in the second quarter, that had a huge ripple effect in the industry. I suspect that some of those GM and Ford trucks sitting and waiting for key parts may well be from there, but I don’t know.
Also, remote working is having a significant effect, as lots of folks no longer are wearing out cars on long commutes. Some have downsized their fleets.
Although gas prices are of course up, fuel costs as a percentage of household budgets are significantly lower than they were in 1980 or 2006, which s why we’re not seeing the rush by owners to dump their trucks at fire sale prices. All new/newer vehicles are significantly more fuel efficient than they were in 1980 or 2006. People complain about gas prices, but they used to pay significantly more of their income in years past.
All good points. I would add to the last one, however, that one thing stopping the large scale dumping of gas guzzlers is – what do you replace it with? I just looked online at a big Honda dealer down the street. A new 2022 Accord EX-L is “in transit” and is priced at $33.9k. They have a 2019 Accord EX-L with 25k miles, and they have it priced at $30.8k or a 2020 with the same miles for $31.5k.
So the choice is to pay full sticker (if lucky) on a new car that is probably weeks away (if that soon) or pay virtually the same price (probably with a higher interest rate) for a used one. And this, maybe the biggest Honda dealer in the Indianapolis area, has a total of 8 used Accords, some of which have no photos or prices, which tells me that they have not actually trickled in yet. That is a pretty good incentive to just keep filling the tank.
The gas increase may be a lower percentage of household income now, but if the car market was a normal one, we would be seeing a lot of people trying to ditch their big pickups and SUVs. It may not make that much financial sense, but never underestimate emotion when people hear predictions (well founded or not) of $7 or $8/gallon in the near future.
My wife tells me sentiment among dealers is that gas will go back down shortly so while their cautious about gas guzzlers no need to dump them. Plus compared to 5 a gallon if it settles at 3.50 a gallon no one will care much.,
I think that remote work that drove so many people to drive fewer miles, combined with limited availability of new cars and their high markups are pushing a more people to buy out leases than did in the past as those buyout numbers for a “low mile” car are significantly below retail.
Those lower miles driven by those continuing to WFH is probably helping to soften the typical American rush to buy a high MPG vehicle when gas prices take a big jump.
My wife’s driving dropped significantly going to 100% WFH from 40%. We had planned to get her a new car back in late 2020 or early 2021 but since the use of her car had dropped so much we instead just gave it to our daughter. The wife now drives the old SUV that uses 3x the gas but with so few miles driven we still spend less on gas, for her, at $5/gal, than we did pre pandemic.
The chip shortage resulted in lots full of new Teslas sitting in storage lots for weeks. I pass by one of these yards near the Tesla plant in Fremont, that lot was full of cars until a couple of weeks ago.
On my recent travel up and down I-5 to/from Oregon, I saw three brands of new cars on transporters: one truckload of Rivians, one of Toyota’s and the usual zillion trucks loaded with Tesla’s. My route takes me past Tesla’s Fremont site, where I didn’t notice anything unusual, and past the huge Toyota and Honda dealerships by 880 in N. San Jose/Milpitas and their new car inventory seemed tiny. The car port of entry docks in Benicia, which supports both Asian sea imports and domestic rail deliveries, seemed busier than other recent trips, however. All anecdotal of course.
Like so many things in life, this situation will also change. But the questions are when and in what direction will things turn.
This is interesting in a number of ways. The one that caught my eye is the supply of GM pickups. I say that only due to there being 25 Chevrolet pickups on order in the location I work and GM recently cancelled production on a number of them, meaning we have to reorder and wait. These are low trim models, so one can speculate from there. Delivery times kept getting pushed out. The uncancelled units were ordered a year ago and haven’t shown up yet.
Yet this is only one data point.
Yesterday or Monday I saw an article somewhere. It was talking about the most recent JD Power initial quality survey and how initial quality has sank with nearly every make. I wish I could remember where I saw that (maybe KBB?).
Interesting on the Silverado that’s what my in laws are taking delivery of this week after waiting just under a year.
I say that only due to there being 25 Chevrolet pickups on order in the location I work and GM recently cancelled production on a number of them, meaning we have to reorder and wait.
Does not surprise me. As you say, low spec, low profit, work trucks. In theory, the lowest price VW Taos is a front drive S trim. Try and find one. Every Taos the local dealer here has has “4Motion”. Until recent weeks, they didn’t even have an S trim example. Cheapest Taos, for months, was an SE 4Motion over $30K. Last winter dealers around here had zero Jettas available. I suspect the Jettas were sitting in a storage yard in Puebla, because parts were going into $30K+ Taoses instead. Late winter, a flurry of new 2021 Jettas appeared, so the parts supply must have eased.
Interesting “chip shortage” effect. I just looked at a facsimile of the window sticker on a 2022 VW Tiguan S. They are charging $325 for the “monster mat” kit, $205 for prepaid maintenance, $105 for a first aid kit, but a $450 credit for blind spot monitor and rear traffic alert, standard features on this trim, not being installed.
Looking at the stickers on all of the Tiguans that dealer has, none of the S or SE trim examples, priced at $30K, give or take, have those features installed. If you want a Tig with blind spot monitor, which is supposed to be standard on all trims, you need to koff up for an SE R-line or higher.$37K to over $40K, because, going by the lack of the deletion credit on the stickers, they are only installing the feature on the most expensive examples.
Jason Shafer: Was this the article you saw re: JD Power?
https://www.cnbc.com/2022/06/28/new-car-quality-declined-11percent-blame-supply-chain-problems-jd-power.html
When I saw your comment I thought, Hey – Where did I also see that?
Several things to unpack here:
1. I believe the “days supply” number is highly misleading as it indicates that there is still or again a flood of cars on lots available to purchase, that is simply not the case with many or most of the models shown. I do believe it includes cars that are marked “in production” or at least “in transit” – i.e. PRE-SOLD units at the dealer to customer level that are on their way to the dealer and will be picked up within a few days after arrival but not removed from the inventory system of of yet. My mother has one of those, her new car is marked “in-transit” and looks to currently be available on the dealer’s site, but she has a signed purchase order in hand and is getting weekly updates about the status of her car. That dealer (a volume Subaru dealer in Northern Colorado with space for hundreds of cars) had literally ONE new car (a base silver Outback) for immediate sale on the lot when she ordered hers but showed over a hundred cars on their website, most marked “in-transit” and actually pre-sold, a number of them the exact color and configuration she wanted, i.e. if those were actually available there would have been no reason to wait longer for her own order.
2. It may also include vehicles such as Ford F-series trucks that were sold and sent to dealers and are being held off-site without the necessary components installed to actually enable them to be sold/delivered to the final customer. This has apparently been going on for months as Ford itself runs out of local factory space to hold all of these.
3. Historically the United States has paid FAR less for equivalent vehicles than the rest of the world (equivalent I mean vehicles specced similarly across markets). There may well be a reckoning long term that results in prices (MSRP) simply staying higher. Dealer markups are a different story. Of course much of the difference was that others paid higher taxes on their purchases that, guess what, actually went towards transportation alternatives and other benefits for society as a whole.
4. Much of the current “demand” simply is people not being able (willing?) to make do with what they have. Sure, if you have a lease return you may be needing to purchase or lease another. Same if you wreck your car. Then again, we own four cars in a three driver household. Many households own more vehicles than they have drivers. If the prices were a burden to them if something happened to one, they’d simply dip into their own surplus for a time and wait things out. Americans historically have felt a subjective “need” for many things that which objectively the need is not there. Well, scratching that itch costs money, now more than before, after all this is the economy constantly touting its “pure capitalism” bona fides, no matter how true or not (hint) that may actually be or ever have been. A company’s only reason to exist is to turn a profit for someone, but the consumer does in the end hold 100% of the power to decide whether or not to support that business, short or long term.
5. The truly poor have always purchased used cars and it’s often cost them more longer term than if they were able to just push into a low-end new car from the beginning. That hasn’t changed. It just now costs them even more. But hey, at least taxes are low. good thing as you get nothing for your money there anyway, not even low oil costs from the taxpayer subsidized industry. Pretty soon, people are going to be fighting over that last slice of Marie’s cake.
I think your glossing over the consumer affordability thing. The median house hold income is 67k a year. It’s not just the poor who buy used cars. At this point essentially only the top 10-15% of households could afford an average new car.
Having more and more people priced out of new cars drives up pricing and demand for used cars hence why as the prices increased older and older cars are kept on the road.
Basically we have the same gap we see everywhere else in the current economy.
I didn’t say ONLY the poor buy used cars, I said the poor have always purchased used cars. That’s very different, I didn’t exclude others as buying used also.
Last year we purchased one new and one used car, they made perfect sense for very different reasons.
I do wonder while the AVERAGE transaction price is mentioned in the post, what’s the MEDIAN transaction price?
If people can’t afford new cars and stop buying them, then the prices will come down. That’s simple economics. The manufacturers and especially dealers have finally realized that they can make more money overall by producing fewer vehicles in total. There’s a limit there that we are watching being explored.
There are also plenty of hidden aspects to pricing that are not taken into account such as tax incentives. Being able to 100% depreciate my new vehicle last calendar year (due to it being able to be utilized for at least three separate legitimate and taxable income streams) EASILY covered and far exceeded the relatively small additional amount I paid for it vs what I would have paid a couple of years earlier. That benefit isn’t figured into the ATP reality either as it isn’t being realized at that point but it did juice my demand and resulted in a higher ATP than otherwise might have happened.
$67k median income seems high actually. Is that gross pay or AGI? Nobody needs to buy a new car every single year which I think (I could be wrong) is what is being implied. Buy a new Altima and drive it for a decade. At $500 a month for the first five years and maintenance for the next five that would seem to be affordable to far more than just the top 10-15% of households. Of course the average buyer thinks they are owed the ability to buy a Denali Yukon and trade it in every three years. Yeah, that stops being affordable real fast.
I think I was a bit harsh re reading your comments.
For data the US census bureau lists the median of all household gross income at 67k. Median household size is 2.5.
The average new car paid price was just under 46k last quarter per COX automotive If you eliminate luxury brands it’s still 42k. (cox notes these as transaction prices not list prices)
As you mentioned there are still some cars in the under 30k zone. But even alot of them are hard to afford if your in that median income bracket with a family. In particular now that the US median rent is over 1800 a month, a $500 car payment would seem a stretch (my current payment is under 300 and I wouldn’t want to go higher).
One other odd aspect is automakers ditching cheap 3 row vehicles. 3 years ago you could buy a Dodge Journey or Grand Caravan for low 20k number brand new, now the cheapest 3 row vehicle is a Mitsubishi outlander at 28k and the lowest price minivan is almost 35k.
I think my biggest issue with this is that this trend will drive up more and more used cars into un-affordability as auto makers settle into lower volume at higher transactions. The only real hope is one of them or a new player gets desperate and starts to play for the low end again. There is signs of this with products like the maverick and many of the vehicles in Hyundai and Kia’s lineups.
I will note you can see this with new housing in much of the US. Most builders gave up on building single family houses for the masses decades ago and almost all (at least near me) focus on bigger houses targeted at upper income earners. 20 years ago I had a customer who was a home builder. He had several developments under construction, I asked why he only builds 3500 sqft plus houses. He said the return was greater, If he put up 6 houses per acre (like my current neighborhood) at 1100-1500 sqft, he said his profit would be about 75 -100k on the acre. If he put up 2 3500 sq ft houses on the same acre his return would be 120-160k for the acre (this was almost 20 years ago).
Yes it was the homebuilders who showed the automakers that small amounts of products for the few are more profitable than large quantities of products for the masses. It has been a long time since anyone has built new entry level houses in our area. But instead of building 2 3500 sq/ft houses on that acre they are sticking in 6 because people around here value that much more than lot size.
Right before the great Recession my brother bought a brand new 1500 sqft house on a 1/4 acre. The builder had bought a number of small lots in a development that was built in the 70’s but never finished. They were cute little houses 1 car garage because that was all you could fit on the lot. Sold for 200-250k I think. My understanding is the builder went under during the recession after building like 20-25 houses. That’s honestly the only recent development of smaller single family houses I can remember. in my area
I agree that the day’s supply isn’t currently a very useful metric for the reasons you stated. Actual days in dealer possession both average and median, not “in-transit”, would be a more useful metric.
I see that real estate background coming through with the desire for the median numbers, long considered to provide a more accurate picture of the housing market than the average.
Yes, the average real estate price in our locality is 11% higher than the median real estate price. The average price is the one used for shock value while the median price is far more realistic. Of course both are still quite a bit higher than previously.
You made me go look as honestly I haven’t looked at the average price in a while as it isn’t one of the default options in stats. For my county, King, in June the average was 27% higher than the median while May was 25% and Apr 30%.
I was just thinking how the low price of the Ford Model T, as well as low gas prices, had a huge impact on the movement of the US from an agrarian economy to an industrial one.
Could the reverse now be happening with both new vehicles and gas being priced out of the reach of not only the poorest Americans, but even the average, middle-class working stiff?
I think some of this is gas prices. In Feb you could buy a Kia Forte near me with no markup now they are rare with 2k markup. Trucks are now back out with no markup. There is also a mix of vehicles on lots that don’t match what people want.
For instance my In Laws are taking delivery of a truck today they ordered July14th last year. The reason was the wanted all the saftey electronics packages (adaptive cruise around view cameras etc) and that delayed the delivery 6 months over taking a stripped out one. A local Ram dealer has a lot of stripped out rams but not many fully loaded ones same issue.
The compact crossover is a constant thing thou people want them and their hard to get, which is likley driving some of the sedan sales.
I know a couple people who recently bought new cars they weren’t in love with because they wanted was back ordered or too much mark up. One bought a Odyssey because the Hyundai Palisade they wanted were in short supply and being marked up 7k over MSRP.
One more thought my wife works for a wholesale auction. Auction prices are still high but mostly steady instead of rising like they did thru the spring. The only weakness so far has been small dips in some truck (diesel trucks) and luxury car pricing (pretty much all luxury cars).
Very interesting economic story – I could write all day on this but I’ll keep it brief and high-level, related mostly to this topic:
That’s true not just with auto sales, but with many other economic stories right now. For example, take real estate – many urban areas on both east and west coasts are seeing significant out-migration of people… but also very strong demand for housing sales. The two seem contradictory, though they’re occurring at the same time.
There’s many causes for these contradictions, but one reason why making a comprehensible interpretation of economic data is tough right now is because we’re seeing an intense bifurcation of households as judged by their ability to spend money. There’s a small but significant proportion of the population for whom cost is no object, while a much larger proportion of households is being squeezed hard right now and need to make very difficult (and hard to predict) choices.
This economic bifurcation is not new – its been going on for a few decades, and is a lamentable state of affairs, in my opinion – but has been intensified greatly over the past two years.
I have a sense – although I have no hard data to back it up – that there is a big winner in this scenario that no one is talking about.
Repair shops. There was a time, not long ago, when a car owner facing a 4-figure repair estimate would have decided that such money would be better spent as a down payment on a better car. I think that’s happening less these days. I can’t stop by the shop I use and ask them something, because every parking space is full of vehicles waiting for repair, and I’m guessing their “average transaction price” is going way up. It just makes more financial sense these days (in more cases) to pay big bucks to keep ones current car going.
” I can’t stop by the shop I use and ask them something, because every parking space is full of vehicles waiting for repair.
That’s not strictly a volume issue, as the repair industry is also struggling with parts availability. Shops are struggling to find storage space, since many of their customer cars are sitting disassembled and waiting on parts.
I’d agree with you, and it is keeping the supply of cars going to the wrecking yards low. It doesn’t make sense to spend $1000 to fix a car what will be worth $1500 repaired, but it can make sense to spend $1000 to fix a car that will be worth $3000 repaired.
My son graduated from College last year and got a good paying job in his field. He has been driving his current car for ~5 years, and tires and a battery were nearing the end of their life. With the current market we came to the conclusion that his car was worth spending $1,000 on to keep it going for another year or two. So he got some new tires a couple of weeks ago, a new stereo with bluetooth and it will get a new battery before winter. Meanwhile he is sticking money in savings so that he will have a big down payment or possibly even pay cash when he does decide to get a new or newer car. His previous car on the other hand went away when it needed a new battery now and tires were going to be due in the near future.
I’ve been wondering about that, e.g. repair shops. My usual car clinic owner just abruptly retired (I heard it on NextDoor), so people were looking for reasonable (apply your own definition here) repair places. 6 months later my engine light comes on: turns out it’s a EGR valve problem on my 2001 Nissan Frontier (I4, manual regular cab–stripper basically) and tried a new place close to work for the first time. Parts were minimal, but it was 3.5 hours tech time cleaning out all the build up @ $125/hr plus the diagnostic fee for a total of $520. I quickly rationalized that it was the equivalent of two car payments (old schedule). I’ve had the truck now 22 years (289K miles) and have no qualms about driving it out of state (in fact I just did–800 miles round trip), but it performed as if I just paid half a kilobuck for just resetting the engine light. Other than the serious outlay on transmission repairs a decade ago (which I learned that U-haul trailers will bollix Nissan transmissions quickly; no more trailer pulling = no more problems), I’ve needed just an alternator and a harmonic balancer replaced. In fact the biggest outlay yearly for my non-DD truck is insurance, that’s gotten more expensive even though I’ve long since given up comp/collision.
Cancelling small and other sedan manufacture seems like such a good idea now NOT, Mazda seems to be every other car in current Auckland motorway traffic, CX whatever seem to be everywhere with Axela3s and Demio2s taking up all the other spaces.
Very interesting data. My one data point conflicts with some of this, I’m sure there are regional factors. My local very large Chevy dealer has practically nothing. No trucks, no Camaros or Corvettes, probably 10% of the lot is occupied.
No Wranglers near me at all. A fair amount of Wagoneers and Gladiators are available.
The Ford dealer is very low too, I was surprised when 3 Broncos showed up, 2 yellow and one red. Maybe they can teach Jeep a lesson about colors other than black. But those Broncos didn’t sit long.
When I bought Wolfie in September of 2018, something told me that if I didn’t buy right away, I’d lose the chance of having a new car. I got 0% for 72 months. I would love to pay it out, but with inflation running ~8%, it doesn’t make a lot of sense. That’s especially true since we are raising prices for our businesses.
It makes little sense buying something during an inflationary cycle. Prices are rising faster than income and eventually that will bring inflation down. With the ATPs so high, I would be hanging on a long time.
Much of the world’s inflation is caused by oil prices. WTI has dropped from $122/bbl to $96 today. Where I live, gasoline prices are down C$0.20/L compared to a month ago. The oil companies are declaring record profits but I doubt they can hang on for much longer without a significant drop in fuel prices. That will do much to slow inflation. Where I live, EVs, PHEVs and hybrids are flying out of the stores. That makes for a bad prognosis for the oil business. Hence the pull back in prices, in my opinion, anyway.
As an aside, we just got back from Rocky Mountain Romp 2022. The APR performance tune is simply awesome. Power above 120 km/h is simple amazing and it used ~5% less fuel on the trip, averaging 5.2L/100 km at speeds 120 km/h and over.
I’m one of those guys that has several available vehicles, actually surplus hobby vehicles in the family. Usually I have at least one car that I can use. But I can empathize that most folks have only a single car and they would prefer to have a reliable one. Last Summer we needed a rental car when the old Explorer suffered problems a long way from home. Rentals were scarce and expensive so we looked for a low mileage used car. I’ve been thinking about a new car but I’ll probably wait for a while.
I thought that car dealers made most of their profit on service so it would seem like a bad thing down the line to limit the amount of cars sold just to make a few extra dollars now at the expense of the long term. If relations with China were normal and friendly now I could see this as their opportunity to walk in and dominate the car business with millions of affordable cars for average folks.
Yes traditionally service (and used) have been the largest profit centers for new car dealers. However they don’t have much choice in how many new cars they can sell. If the MFG is only shipping them X cars per month they are going to be limited to selling X cars per month, once they depleted the stock they had on the lot when this whole mess started.
Dealer service is the store’s cash cow. Unlike cars financed, there is no waiting for payment. All the day’s orders and paid up by 5:00 PM, or should be!
I recently received a GMC 2500hd I ordered first week of February. The dealer has minimal on the ground new inventory, and that seems to be the norm around here. The high price
of used vehicles made ordering new a more reasonable option than spending excessively
on a Pre-owned unit. Even decent beater vehicles are going for rather foolish money,
and so it goes.
Several trends are converging. White-collar workers (and their bosses and supervisors up the chain of command) are learning many of their employees don’t need to drive to the office every single day, saving office space and reducing demand for cars in the most upscale segments. It’s finally dawning on real-estate agents that their unyielding fixation on the “household” as the unit of measure has long ago become outmoded. For decades, the housing (and banking) industry steadfastly refused to revise their metrics or how they see the housing market, particularly for detached houses. The real-estate (and banking) industry could not for a long while unwrap their notion of a “household” containing Mr. Breadwinner, his wife (usually with the same last name and usually earning a fraction of her husband, if she works outside the home at all), it’s finally dawning on real-estate agents that their unyielding image of the detached-home “household” as the standard unit of buying power may need some adjustment to bring it into reality, now that only 19% of American homes are occupied solely by a married couple and their underage children. Lots of things have changed, including widespread births to single parents, more remarranges, more divorces, people staying single for a much longer time (or for their whole lives – married American adults now represent a minority). Many homes are multigenerational. Many homes include friends, roommates, and/or boarders, which I highly recommend both for social and financial reasons. Obtaining a loan is easy when your two roommates who live upstairs or in the basement are making a decent sum, even if you’re unemployed. Nothing deceptive here – having an extra $1,500 coming in every month makes it easier to buy cars and other things and drastically cuts utility bills per person.
As for the car market, this can’t sustain itself forever. Buick and Fiat are doomed (in N.A.) if they don’t get their act together soon. Stellantis needs a mainstream luxury car that sells in BMW/Lexus numbers. The top ten include sedans, a hatchback, and even a station wagon. The Asians, Germans, and Tesla have no problem selling sedans, hatchbacks, and even station wagons. Detroit has given up, deciding SUVs and pickups are more profitable anyway, but they may never win back the people buying Elantras and Fortes and Jettas and A4s and Model 3s, just the way Detroit never won back those that bought their underwhelming small cars of the ’70s and ’80s.
It’s time to stop talking of Tesla as a “startup”. They’re a 19-year-old company that has large plants (car and battery) in several continents plus an exclusive charging infrastructure, and a build rate that easily topples the annual rates of the postwar American totals in their best years. Last quarter, Lucid and Rivian both outsold Fiat, despite the staggering price difference.
So big questions remains – do people just not need cars as much anymore in this age of Uber and Lyft and Amazon and Zoom and Facetime and car sharing, will the car crunch keep even people who want their own car from owning one because it’s easier than ever to get by without one, yet more expensive if you want to own one?
Detroit’s policy of strategic retreat which started in the ’80s when GM elected to replace the domestically-built Chevette with a grab bag of captive imports has never really worked for them in terms of market share and only sporadically in profitability leaving them more and more dependent on fewer and fewer segments (particularly the hyper-loyal full size pickup buyer).
Tesla has never taken a model through a full redesign, leaving the Model S now the oldest “new” car on the market since the Dodge Journey was discontinued.
Tesla would like you to think of their cars as classic shapes that don’t need modification except to accommodate improvements. The VW Beetle is the classic example of this ethos, but a more realistic comparison would be an early ’90s Volvo 240, Saab 900, or Porsche 911, each which continued to sell well into the last decade of the 20th century despite styling and engineering that clearly dated back to the 1960s, as their shapes became iconic. The new Model S looks likes an old one save for ditching the fake grille, but the interior is all new (and would be an improvement if not for the silly yoke), AWD has been added, acceleration and seat comfort improved, range drastically improved, and there have been loads of technical updates, some delivered over-the-air. Fortunately the Model S and Model 3 look great IMO; i’m less enthusiastic about the egg-shaped X and Y. I’d prefer both of those with more squared-off cargo holds for better looks and better practicality. The Models X and Y are shaped like other makers’ “CUV coupes).
Buick sold around 180,000 vehicles last year in the US. I wouldn’t count them out just yet.
What jumps out to me in the above statistics is Honda, down over 50% from last year. Local Honda stores have little inventory, the same with Acura which has practically nothing. Puzzling as their products are always in demand and additional dealer markups are common. Is this really chip shortages, supply chain problems and pandemic issues, or did Honda discover that it can make more money selling half the cars at inflated prices.
I think the latter and the auto business has changed forever.
Lots of comments here, most very good.
Cars are better than they used to be build-wise – and last longer. So, when we experienced this level of inflation and economic turmoil, it was forty years ago, and a lot of us remember that time. The cars back then weren’t as good and they needed to be replaced more often. So, if you needed a vehicle during those Malaise years, you had either a choice of a rust bucket, or new cheap Japanese wheels.
So, here we are in a similar cycle. I suspect we will see high prices on used cars that are built to last longer than they were forty years ago. But we are not seeing any new cheap wheels.
Yet.
But the market will be there. Who is going to meet this need? Who will bring in the new cheap wheels? We cannot keep expecting new teen drivers to drive our expensive new cars + the insurance for them.
With our work patterns going from two commuting to offices daily to mostly work-from-home for both of us, we have gone from two vehicles on the road each day to one vehicle out only two or three days a week. That shifts our buying (and fuel and maintenance) patterns significantly over time. It looks like, in our cases, WFH most of the time will be permanent. Our car ownership calculus has (likely permanently) changed.