After microchip shortages, shipping disruptions, and labor strikes, the auto industry has revved up inventories. For customers that means something many haven’t seen in years — sales discounts.
Industry guidelines aim for 60 days’ worth of cars, according to Kelley Blue Book. Dealers averaged 71 days’ worth of supply in November. “Days of inventory” is how long it would take a dealer to sell its current stock.
“Our inventory is building up,” said Brett Hedrick, general manager of Hedrick’s Chevrolet. “So it, you know, it’s going to be good for the consumer because the choices are going to be so much better.”
Return of Markdowns
Beyond available choices, auto dealers have the inventory to begin discounting cars again.
Throughout the pandemic, demand was so high and availability so low that dealers needn’t significantly mark down vehicles, Hedrick said.
“There weren’t that many vehicles out there,” Hedrick said. “People weren’t trading in, people weren’t buying new ones. Prices went up because certain vehicles you couldn’t get.”
Now things have changed.
November marked the first time in the last decade that auto prices dropped year-over-year for three months straight, according to Kelley Blue Book.
Discounts on non-luxury cars made up 5% of the average sales price, up from 4.9% in October. While still low, the level of incentives from dealers is the highest since September 2021. For comparison, non-luxury incentive packages made up 10.5% of the average sale price in November 2019.
For the first time since the pandemic, vehicles — depending on the model — are selling below MSRP, said Tim Finegan, president of Fresno Chrysler Dodge Jeep Ram. The Manufacturer’s Suggested Retail Price is a benchmark set by automakers.
“The premium cars that you can’t get will still demand high prices,” Finegan said. “But you know, the average everyday car, you know, it’ll sell at MSRP or less.”
Inventory Depends on Brand: Manufacturers Correcting Oversupply
For a time this year, Finegan had more vehicles on the lot than he had ever had in 15 years. He has since balanced his inventory, he said.
Driving inventories up is a combination of softening consumer demand and higher production targets.
Finegan estimates sales for the year about 40% lower than usual. Higher interest rates and prices pushed consumers away.
Where they would normally sell between 80 to 110 cars a month, Finegan said they would be lucky to sell 50 in December.
While vehicle registrations show a 14.3% increase year-over-year for the 2023 year ending in September, Hedrick thinks it will end the year flat. The fourth quarter has been slow, he said.
The stock of vehicles depends largely on the brand. The average Toyota dealer sat on only 32 days’ worth of inventory in November, compared to the average 71-day stock. Honda, Lexus, and Kia followed behind Toyota. At the other end of the spectrum, Ram and Infiniti dealers had the largest inventories with 114 and 120 days’ worth, respectively.
Jeep dealers in November had 128 days’ worth of vehicles.
Manufacturers increased production ahead of what they thought would be an extended strike by the United Auto Workers, according to KBB. Negotiators resolved labor disputes quicker than expected with fewer factory shutdowns than expected as well.
Manufacturers will likewise respond to oversupply by slowing production. Jeep’s parent company, Stellantis, announced it would cut one of three shifts at a Detroit, Michigan plant. Another Jeep plant in Toledo, Ohio, will have job cuts and lowered production.
Could Car Buyers Have a Normal 2024?
Finegan sees car sales returning to normal by the middle of 2024. With production balancing and the Federal Reserve signaling lower interest rates, customers can expect cheaper loans.
High interest rates not only affected the volume of sales, but the amount of money a customer would qualify for, Hedrick said.
Hedrick saw a number of customers go for mid-line or lower-line cars.
Parts availability for car repairs has also normalized. For Hedrick and Finegan, the biggest casualty of the UAW strikes was the service center. Parts for repairs were delayed anywhere from two weeks to a month.
Production is back up and parts are going out once again, both dealers said.
With the rise of electric vehicles, manufacturers are changing the way they are delivering vehicles, Hedrick said.
The old business model was to build as many vehicles as could be done, Hedrick said. The cars that couldn’t be sold would be rebated.
“It feels like what they’re doing is lowering the amount of vehicles that we have on the lot at any time and keeping more of a steady flow,” Hedrick said.
With bans on new gasoline and diesel-powered vehicles coming in 2035 in California and elsewhere, manufacturers may be looking to cap production, Hedrick said.
“I think they’re kind of figuring that out, that it’s better to be, you know, lean and agile than, you know, just flood the market and be fat with vehicles.”