You can’t sell what you don’t have. That’s the lesson car dealers may learn this summer.
Not all automakers have published their sales results for the first half of the year. But enough have for us to say that a slowdown began in June. Not because fewer Americans want to buy a new car. But because more of them are turning away, unable to find a car they want to buy.
Demand Has Been Climbing
Americans bought cars at a near-record pace through the first half of the year.
The seasonally adjusted sales rate (a figure that removes normal seasonal fluctuations to make it easier to compare one month’s data to another’s) hit its highest rate ever recorded, some 18.5 million, in April. Record-keeping began in 1976.
Supply Has Been Falling
But a worldwide shortage of microchips has forced car builders to slow or stop the factory production of some models. New cars can contain more than 100 microchips. They control everything from raising and lowering windows to shifting the transmission.
Factory throttling, combined with brisk sales, meant some popular models became hard to find. By mid-May, Dealers had less than two weeks’ supply of some popular SUVs – well below industry norms.
Low Supply + High Demand = Prices Rising
The result? Higher prices. Dealers saw little need to discount cars – incentives as a percentage of the average new car’s purchase price fell to a 10-year low in May. Prices crested $40,000 for the first time late last year and stayed there – the average new car sold for $41,263 in May.
No Reason to Expect Change
Early returns say new car sales slipped in June, but there’s no reason to expect prices to fall. Cox Automotive Chief Economist Jonathan Smoke explains, “The sales frenzy is over, but we’re settling into a more normal and predictable pattern of strong demand that should grow into the future.” Cox Automotive is the parent company of Kelley Blue Book.
“We expect the second half to be constrained, and even though there will be strong demand from consumers, they can’t buy what isn’t there,” adds Cox Automotive Senior Economist Charlie Chesbrough.
“High prices are keeping some buyers away from the market altogether,” says Cox industry intelligence analyst Kayla Reynolds.
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