It's Gonna Be A Seller's Market For Cars For A Good Long While

Illustration for article titled It's Gonna Be A Seller's Market For Cars For A Good Long While
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If you didn’t own a car before All Of This began, you may have reconsidered that choice once or twice in the meantime, possibly because you fear public transportation like planes and trains. The circumstances of 2020 led to a somewhat weird situation in which new car sales were down considerably from 2019 — but as demand returned, inventories fell short.

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Most analysts expect U.S. new-car sales to come in around 14.5 million new cars in 2020 when the final numbers are tallied, which is 15 percent lower than the 17 million sold here in 2019. The biggest reason for that drop, of course, was the pandemic and the ensuing economic chaos — and that for about six weeks last spring many of us were frozen into place.

But that full-year sales decline is also smaller than many would have predicted in the early days. Since we all started moving and buying things again, demand has steadily returned, with many automakers finishing the year feeling pretty optimistic about how sales will look in 2021.

The problem now is that inventories haven’t kept up, as automakers still haven’t fully recovered from the plant shutdowns during the early days. Dealers have less supply but strong demand, in other words. That means one thing for consumers in the market, and that one thing isn’t good.

From The Wall Street Journal today:

Now, the industry faces an inventory crunch expected to last well into 2021, dealers and executives say. New-vehicle stocks at U.S. dealerships have been running roughly 25% below normal for months, with more-severe shortages in large pickup trucks. That has curbed overall sales, but also resulted in a seller’s market, sending prices soaring to record levels, along with profits for some car companies, dealers and parts suppliers.

The average price paid for a vehicle in December was around $38,000, up from about $34,000 in early 2020, research firm J.D. Power estimates. Dealers whose lots are only half full have been stingier with discounts, said Tyson Jominy, J.D. Power’s vice president of data and analytics. On top of that, buyers are shifting toward bigger, pricier vehicles like pickup trucks, he said.

These are all macro trends, mind you, so I’m sure there are still plenty of deals to be had on an individual basis if you go looking, as there are in any market. But part of why this hurts is that the used-car market hasn’t been immune.

Some dealers say 2020 was among their most profitable years ever, due in part to better pricing and surprisingly strong used-car sales. Used cars—a key profit center for dealers—have been hot, partly because the shortage of new vehicles has steered more customers to the preowned lot.

Analysts predict auto makers will remain in catch-up mode on restocking inventory for much of the year, likely resulting in better profit margins for manufacturers and dealers—and fewer deals for consumers.

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A somewhat similar thing is happening with non-urban home prices, in that there is more demand than supply, and I pity anyone in the market for either a new car or a new house at the moment. But as the Wall Street Journal story points out, new-car inventories should be back to normal by late next year, which should, in turn, reduce used-car demand — and maybe restore some equilibrium.

That is also, of course, around the time the coronavirus vaccine is supposed to be in wide distribution, when lots of other things might go back to normal as well. Well, “normal.” It’s probably going to feel the weirdest right around the time the masks — which feel like we’ve been wearing for forever at this point — come off.

News Editor at Jalopnik. 2008 Honda Fit Sport.

DISCUSSION

yeardley68
hoser68

I agree with what the article says, but not the logic behind it.

The focus is on the higher prices for new cars and the rising demand for all cars because people are fleeing the cities and avoiding mass transit. I am not convinced these are more than passing transients in the market due to a reaction to what is going on.

The upper middle class has not seen the impact on their incomes the middle and lower classes have. They see good deals on luxury cars that can be delivered touchless to their doors. I don’t know if they will continue to see good deals nor that the lower classes will not see the opportunity to get a new less expensive car once they know they still have a job.

I am also not convinced that the flight away from urban centers and mass transit is a long term trend. There was a really strong trend towards urbanization and mass transit pre-Covid and once everything is safe, this might reassert itself.

I see both as waves in the ocean. I cannot tell if the ocean is rising or falling from these waves. But I can tell this. The world production of automobiles dropped dramatically for 12-18 months. This low supply is like a tide coming in to the price of cars. I can’t tell based on the richer people getting cars or if the panicked flight from urban centers will continue, but the low supply of cars for 18 months will drive prices up for years even if these are passing trends.