Following recent production shutdowns as a result of COVID-19, there is a tight market for both new and used vehicles. A sign of the former is fewer and less generous deals; the latter is higher prices and better trade-in values. If you’re selling or trading your current car, it’s a good time to cash in. However, shopping for a new vehicle can be more a challenge to find the right deal.
Navigating this market can be done where you maximize the value of your current car while finding the best price possible on its replacement. For your used car, check out tools like Kelley Blue Book’s Instant Cash Offer. You can also check out the month’s top deals here. Also, here’s a few factors to consider when shopping for a new car:
- Why inventory matters
- How do inventory levels affect sales?
- Where do current new car inventories stand?
- What’s hot, and what’s not?
- What vehicle types are in short supply and high demand?
- Where will I find my best deals?
Why inventory matters
A long time ago, car buyers used to order their new vehicles from dealers. It would take about six to eight weeks to take delivery, and you could choose everything from color to powertrain. However, over time, buyers preferred getting a car right away rather than wait. It might not be the exact color or have precisely the equipment they desired, but it was on the lot and ready to go when the deal closed.
Manufacturers, responding to this trend, began building cars in batches with certain options and accessories packaged together. Based on market demand for certain vehicles, they could generally predict the kinds of cars as well as colors and features sought by buyers. Makers can effectively schedule production and keep dealer lots stocked with a wide selection of popular vehicles.
As a result, virtually every new car, truck, or SUV exists long before it has a buyer. In addition to carrying an inventory on their lots, dealers will also swap cars among themselves to find the right car for you.
How do inventory levels affect sales?
Inventory levels work like basic supply and demand in economics. When supplies are high, and demand is low, you’re able to negotiate a better price. Flip the picture, and when there’s a tight market, prices go up. The same is true for incentives. In a period where there are plenty of vehicles on the ground, incentives tend to be more generous. Tighten up supplies, and incentives begin to disappear.
Spring closures of business effectively shut down new car retail sales. While in a normal recession, manufacturers would have kept factories open, supplies would have risen. There would be plenty of vehicles to choose from when buyers returned to the market.
This time, manufacturers shuttered their plants. The inventory levels fell, resulting in a tight market. Once the plants reopen, and buyers return to the market, short supply isn’t able to keep up to demand. Remember that back in the day, it took six to eight weeks to get a car from the assembly line to the dealer lot. That has shortened somewhat. However, there is still a gap in the dealers’ ability to restock inventory to meet the demand for new cars.
Where do current new car inventories stand?
According to a Cox Automotive analysis of vAuto Available Inventory data, the total supply of unsold vehicles at dealerships across the U.S. stood at 2.59 million units at the end of June, down 20-percent from the 3.23 million level at the end of June 2019. That dropped the national days’ supply to 70 days, down from 85 days from the same time a year ago. (vAuto and Kelley Blue Book are both Cox Automotive companies.)
Days’ supply is an industry term that describes available inventory. It’s how many days it would take to sell all the vehicles in stock at the current sales rate. If a dealer has 100 cars and sells an average of 5 vehicles a day, the days’ supply is 20. On the other hand, a dealer across town might also have 100 vehicles on the lot but sells an average of 25 a day. With a faster sales pace, the days’ supply is four.
Days’ supply matters because it drives incentives and deals in the automobile business. If you are shopping at a brand with a low days’ supply, you’ll likely have less choice among colors and trim packages, and if you’re looking for a great deal, don’t count on it. With a low days’ supply, the dealer is less motivated to meet your price.
What’s hot and what’s not?
When it comes to inventory, there are vast differences across the many automotive brands, which may explain why some vehicles are in short supply, and others are plentiful. As Cox Automotive senior economist Charlie Chesbrough notes, “At the end of June we were seeing a large spread across the many brands in terms of inventory – it’s a market of haves and have-nots.” It is an important factor for vehicle shoppers to consider.
At 39 and 41 days’ supply, respectively, Toyota and Subaru have notably thin inventory, particularly on popular models. Subaru and Toyota play directly in the center of the non-luxury auto market, which has enjoyed relatively strong sales in an overall down economy. Surprisingly, even Toyota’s luxury brand Lexus is tight on inventory, according to the Cox Automotive analysis, with a 44 days’ supply at the start of July.
So who has ample inventory in this tight market? The brand with the most inventory in the U.S. in early July? Mitsubishi, at 155 days’ supply. That means Mitsubishi dealers are heavy on supply and light on demand. As your junior high economics teacher would tell you, that means the vehicles will be priced to move. And indeed, according to Kelley Blue Book data, Mitsubishi had the lowest new-vehicle average transaction prices in the industry last month.
What types of vehicles are in short supply?
Certain segments are experiencing low days’ supply currently as well. Pickup truck inventory, for example, both midsize and full-size, is well under the national average. Typically, automakers will stock a higher days’ supply of trucks than cars or SUVs, as trucks come in so many variations. Low days’ supply means less choice, which can be disappointing to shoppers. Chevrolet and GMC have been particularly short on pickup inventory this summer, less so for Ford and Ram.
Navigating a tight market presents challenges. But, flexibility on the type and brand of vehicle is the key to finding a good deal.
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