Here’s something dealers haven’t heard for at least a few years: some manufacturers may have to start addressing a problem of too much new-vehicle inventory, according to Cox Automotive.
Despite the perception that new vehicles remain in relatively short supply, several Detroit Three brands are above the industry average of 55 days’ supply, including GMC, Ford, Lincoln and Ram, while Dodge is about 100 days, and Jeep, Buick and Chrysler are above 100 days, according to Cox Automotive.
That should help quench dealers’ thirst for more inventory. More than half (59%) of dealership respondents to a recent Wards Intelligence survey report inventory shortages were the most issue they faced in the previous 12 months. An almost equal number (53%) predict lack of inventory will continue to be their biggest stumbling block.
No manufacturer has hit the panic button signaling production shortfalls yet, but Charlie Chesbrough, senior economist for Cox Automotive, says the question for 2023 is becoming: Which brands, if any, will cut prices to increase sales?
“Clearly, it’s a much different situation than a year ago” regarding inventory, he says. “Last year, it was too low. In previous years, it was too high. Today’s level may be the new sweet spot of about 55 to 60 days.”
Import brands with higher-than-average new-vehicle inventory include Audi, Infiniti, Jaguar, Alfa Romeo and Volvo, Cox Automotive says.
Days’ supply estimates how long a given inventory of new vehicles would last if not replenished at the most recent monthly sales rate.
So far, most brands appear to be sticking with low incentives, Chesbrough says in a review of first-quarter auto industry trends.
However, for the industry as a whole, incentives have begun to increase slightly from record lows. To put that in context, the average new-vehicle transaction price is still above manufacturers’ suggested retail prices – but just barely, according to Cox Automotive.
Before the pandemic, new-vehicle incentives averaged about 10% of MSRP, and the average transaction price was about 95% of the sticker price. That bottomed out in the fall of 2022, when incentives averaged just 2% of MSRP, with the average transaction price at about 102% of sticker.
In February 2023, the average incentive increased to about 3% of MSRP, and the average transaction price was right around the sticker price.
The temptation to ratchet up incentives more could increase if inventory gets too high and if a recession drives demand too low, Chesbrough says.
Supply is “noticeably higher” this year, by about 740,000 units, or a 70% increase vs. mid-March a year ago, Chesbrough says. But that’s still only about half the new-vehicle inventory at the same point in 2019, he says.