New vehicle availability is near record lows, shortages are shifting to economy cars, prices are hitting record highs. But the surge in used vehicle prices is running out of fuel in an ample supply

The weirdest car market yet.

By Wolf Richter for WOLF STREET.

The inventory shortage at new vehicle dealers continues unabated and inventory remains desperately low, but the shortage is changing as demand has shifted and there is now a build-up of supply, for example at Ram dealers, while economy vehicles are essentially sold out , and EV models have long waiting lists – as people are tired of being hit by high fuel prices.

The number of new vehicles “in stock” on dealer lots and “in transit” to dealers fell to 1.12 million vehicles at the end of June, down 70%, or 2.61 million vehicles, from same period in 2019, according to Cox Automotive estimates based on Dealertrack data. On that basis, new vehicle inventories have not improved since December. By comparison, in 2019 new vehicles averaged 3.66 million vehicles.

The term “inventory” accounts for what is “in stock” and what is “in transit”. And it may include units that have been pre-sold. A dealer’s website typically displays three labels next to the vehicles in their inventory: “in stock,” “in transit,” and “sold.”

The relentless surge in new car prices.

The average asking price (announcement price) indicates that dealers are not yet in the mood to offer deals. June’s average trade-in price rose 11.5 percent from a year earlier to a record $45,976, according to Cox Automotive.

Cox also said that in the last week of June, prices “started to come down a little bit.” So perhaps it is likely that dealers are encountering slight price resistance in some corners of the market.

Offer prices fell in January, February and March, only to reverse in April – and some of that was seasonal, as January and February are the worst months for dealers, when volume tends to fall off the December high. By June, they reached a new record with growth of 11.5% on an annual basis. This still speaks to a hot market with insufficient supply:

The average price of the transaction — the price at which vehicles are sold and delivered — jumped 14 percent year over year to a record $45,844 in June, according to data from JD Power. Compared to June 2019, this is an increase of 36% or over $10,000.

At these prices, dealers realized record gross profits per car delivered. Including finance and insurance (F&I) sales, dealers made an average of $5,123 in gross profit per vehicle, up $1,174 from already high levels from June 2021, according to JD Power estimates.

The chart shows the ATP for December and June each year. Before the pandemic, there was an established seasonality where ATP peaked in December but declined from there until June each year. But in June 2020, ATP in June equaled December for the first time. And in 2021 and 2022, the ATP simply jumped from December to June, regardless of seasonality. The green line connects December:

Shortage of economy vehicles. There is no shortage at Dodge & Ram dealers.

Plenty of deliveries at Dodge and Ram dealers: Including in stock and in transit, Dodge dealers ended June with 90 days of supplies and Ram dealers with 81 days of supplies. The industry considers 60 days to be the ideal between tight and sufficient.

Effective vehicles are essentially out of stock. At the lower end of the lineup in the non-luxury segments were Asian brands with economy models that were essentially sold out: Toyota Corolla, Kia Telluride, Toyota Camry, Hyundai Palisade and Kia Sportage.

At the lower end of the offering by segment:

  • Hybrids, delivery in 17 days
  • Mid-range cars, delivery in 22 days
  • Compact cars: delivery in 24 days.

The supply of full-size pickup trucks is growing: At the top end of the 30 best-selling models were three pickup trucks and two SUVs: the Ram 1500 (79 days), the Ford Escape (69 days), followed by the Jeep Compass, the Ford F-150 and the Chevrolet Silverado.

This is now a new inventory problem: wrong inventory. In 2020 and 2021, pickups were especially hard to come by and everyone wanted them. But then gas prices shot up and suddenly fueling costs became one of the purchase considerations and pickups lost their edge. Demand shifted to more economical cars.

But because of long and complex supply chains, carmakers cannot immediately respond to changes in demand. And the supply problems caused by the semiconductor shortage took on a new dimension with this shift in demand to more fuel-efficient models for which automakers were unprepared.

Used vehicles: plenty of supply.

Used-vehicle dealer inventories totaled 2.46 million vehicles at the end of June, up 5.5 percent from a year earlier. Compared to 2019, it has decreased by only 10%.

But sales have been down for months compared to 2021 and 2019 as buyers began to resist extremely high prices. And days supply at the end of June, given the lower sales rate, reached 49 days, slightly above the 2019 average (48 days).

Used vehicles: Crazy surge in prices Fuel remains.

Between December 2019 and December 2021, over those two years, the average asking price for used vehicles jumped 42%, or $8,300 per vehicle, from $19,871 in December 2019 to $28,205 in December 2021 , which was complete madness and this is where the resistance finally started to kick in.

By June, the average asking price had fallen to $28,012, slightly below December. The declines in January, February and March are seasonally normal, but the declines in May and June are not. And by the looks of it, the completely insane price spike may have finally run out of fuel.

But there is still no oversupply. Inflows into the used rental fleet market have been tempered by production shortfalls of new rental fleet vehicles, and they are slower to turn over their fleets. And wholesale prices, although they have fallen since the spike in December, are still sky-high. In this environment, traders are not yet motivated to cut prices by a whole bunch to move iron. But at least the fuel for the price spike is over.

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