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Inventories at dealers of new and used cars and parts fell to $145 billion in dollar terms in October, the lowest level since the spring of 2012, a 23% drop from October last year and a 40% drop from the months before the pandemic.According to data released by the Commerce Department on Wednesday.
U.S. dollar inventories fell 18% despite a 44% year-over-year surge in used-vehicle wholesale prices and a general shift by automakers to premium new cars that prioritized their most profitable models.Average transaction price.
These historic price distortions have massively inflated dollar-denominated inventories, and they can cause these inventory quantities to inflate in historic ways.But the actual number of vehicles in inventory has collapsed — we’ll get to that later — and not even a spike in vehicle prices can cover it.
The inventory-to-sales ratio — dollar inventories divided by dollar sales, offsetting higher prices — fell again in October to record lows in April and May, the lowest in 1992 data:
Above: After the Lehman moment at the end of 2008, new car sales plummeted, and the United States suddenly flooded with inventory, and the inventory-to-sales ratio soared.The July 2009 cash-for-clunkers program briefly boosted sales, pushing down the inventory-to-sale rate for a month.
The sales slump in March and April 2020 triggered an even bigger spike in the inventory-to-sales ratio.Subsequent supply shocks and simultaneously stimulated demand shocks had lingering effects.
To clarify: The above is about combined inventory of new and used vehicles and parts in dollars.The following are just new cars, in units.In the following, we will introduce used cars by unit.
Unsold inventory of new vehicles and light trucks was 995,568 in November (up 8% from October, Hallelujah), down 64% from 2.76 million new vehicles in November 2020 and down from 3.5 in November 2020 Inventory was down 71% in November 2019 at 100,000 vehicles, according to Cox Automotive.
Days of supply in November was 32 days and has been in the same range of 29 to 33 days since May.
A healthy supply is about 60 days.In November 2020, the supply is 70 days.In October 2019, the supply was 88 days – bad news in the other direction, suggesting that cooling demand has led to a supply glut.
The average number of days it takes dealers to sell a new car fell to an all-time low in November, according to Cox Automotive, as more vehicles were ordered by customers and mentioned when they were finally dropped off the carrier , the inventory of dealer lots is actually very small.
Sales have dropped significantly due to tight supplies.According to BEA, the seasonally adjusted annual sales rate for new vehicles fell 19% year over year in November and 25% from November 2019, as there was little inventory available for sale:
Toyota had a strong summer earlier this year, avoiding most of the semiconductor shortages through a special deal with its semiconductor suppliers a decade ago.When other automakers ran out of inventory, its sales grew.The deals expire after three to six months.By the summer, Toyota’s production had been hit by a semiconductor shortage, and massive production cuts then trickled down to dealers and their inventories.
GM and Ford were hit hard by semiconductor shortages at the start of the year, but have now secured some supplies and production is resuming, even as Toyota is being crushed.
Toyota dealers’ days of inventory supply has shrunk to 16 days because dealers basically don’t have vehicles on their lot now, they’re selling units that customers ordered, or they’re selling units that were in transit before they came off the carrier .
But inventories of Ford and Lincoln vehicles increased to 39 days.The supply of Chevrolet vehicles is increased to 32 days.As a high-margin manufacturer that all manufacturers have always prioritized, the supply of full-size pickups appears to be improving U.S. brands, according to Cox Automotive:
Unlike new cars, there is no shortage of used cars, except for very low-end vehicles.But supply is tight.Total used vehicle inventory at dealerships rose 2.7% from October to 2.31 million in November, down 11% from November 2020, according to data from Cox Automotive today.
Of those 2.31 million vehicles, 1.29 million belonged to franchised dealers (such as Ford dealers or Toyota dealers).1.01 million vehicles are in the hands of many independent dealers, from small businesses to CarMax.
Supply at the end of November was 44 days — back to normal range — but that’s down 15% from November 2020, as November sales were up 5% year over year.
The surge in average listing prices for used cars in inventory justifies the absurd spike in used car retail prices starting in the summer of 2020 (up 31% year-over-year in November):
The average listing price for a franchised dealer used car rose to just under $30,000 with an average odometer of 62,000 miles.At independent dealers, the average listing price rose to nearly $25,000, with an average of 78,000 miles on the odometer.
With everyone pushing up prices, traders below $15,000 have little left.But supply is plentiful when prices are high.So far, it’s surprising that Americans have been willing, even eager, to pay these ridiculous prices instead of driving what they already own for a year or two:
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It provides a wealth of insights into how new-vehicle manufacturers structure their production operations (most profitable first, then lower-margin products, probably designed to maximize revenue/total profit through the equivalent of price discrimination).
That makes sense…though it also portends a possible massive contraction in overall car production (if insiders are comfortable with shrinking the company, the “safety” of big-margin sales could be addictive…Faced with poor demand Certainty, who needs the risk/headache of producing a low-margin car?)
Historically, everyone wanted to scale to minimize the marginal cost of production…then marketing might worry about the rest.
But now producers seem to be exuding a vibe that they may accept 80% or 60% of the original size…as long as they can still sell to the transportation industry.
You’ve never lived in a country that stopped trying to lower the marginal cost of production/price of goods…it would be a materially poorer country for the majority of the population.
Adam Smith warned that countries with “high profit margins” were doomed.just say.In 1776, the year of our revolution, Smith published his iconic economics book, The Wealth of Nations.
High profit margins sound good until you realize that means the share of revenue devoted to labor is too small to be sustainable.This is the recipe for wealth inequality.
Some of this is necessary to support a large elderly retirement population (profit margins -> pension payments).
But as Henry Ford pointed out, the greatest prosperity for all requires paying enough workers to buy what they make.This is what makes the most profit for supporting retirees.
They think paying $5 is better than training new employees and putting up with delays on the assembly line, which is why they do it, but use it as a public relations stunt.
It helps explain how short-sighted capitalists ignored Ford’s approach once they could get public schools to mass-produce numb workers who could endure repetitive assembly line work…
“Mind-numbing” assembly line work is not what you think it is.There are fewer and fewer manual operations on the assembly line.Most welding is done by robots…painting is done by robots…internal assembly is done by machines (human assistants – heavy lifting and placement under human supervision).Robot-placed windshields…all of these robots require maintenance and operating knowledge.In most cases, humans perform visual inspections of the robot’s performance (paint defects, paint corrections, panel alignment, etc.).
Cars are built in air-conditioned factories, most of which are cleaner than the average residential kitchen.
Public school graduates now don’t have calculators and can’t even change.If you’re feeling particularly sadistic, buy something odd at the grocery store for under $10, offer a 10 and then change it to a 5 and some singles, then look the clerk’s eyes glazed over.
Selling lower quantities at a much higher price is ideal for cheap currency and low credit standards.Traditional lows, not today’s and recent ludicrous lows.
If a car company wants to sell a specific product line, that’s their “right” under Free Enterprise.
Let’s imagine that Walmart acquires or builds a car manufacturing business.Build a nice 4 door, 4 cylinder engine, simple automatic transmission, absolutely minimal electronics, etc, and keep it as simple as possible.Then, they only have 3 colors, red, white and blue.
One price.Put a model next to each Walmart.Priced at $9,999.No bargaining.Set up interest and amortization, assuming 5% for 5 years.(The monthly payment is exactly $200 per month).
Definitely not “bargaining” on anything.One would buy it as is.The goal is to sell the car in 30 minutes or less and have it delivered at Walmart Auto the next day.Almost everything can be done online at Wal-Mart Auto.com.
For decades I’ve wondered why Walmart didn’t do this.I can imagine serious threats from car dealership networks, domestic automakers, and of course, banks doing a Tucker attack on anyone who tries.
Yes, it has sounded logical for decades.But it turns out that Americans don’t like buying small, cheap cars — well, a few do, but the numbers are too small.Tried many times before and those cars are not for sale.We used to sell a Ford Festiva circa 1990 for $4,999 new and no one was making any money on it, but we could only sell 1 or 2 a month and only 150 pickups.They’d rather buy four-year-olds big and nice than basic, small and cheap stuff.Americans have fun with their vehicles.
Marcus/Wolfe – If anyone goes back in time before WWII, I’m sure Sears tried “affordable” cars/motorcycles.Without success, in the end…
Most families I live in prefer a small car as a second car – but they want a used car because it’s cheaper.The car is used as a wife and child’s car for long trips – say 2 to 4 hours.Also, people in low-paying jobs (most of them here) prefer used small cars.They want a bigger car unless they live in it.
However, they generally dislike American or European-made cars, as these small cars have a reputation for breaking down and dying young in these mountains.A small Toyota or old Datsuns and Izuzus live forever on dirt roads and shoot it through the streams that run through those roads.This is not unusual for any rural area in the west.
Most people here prefer a Toyota, Ford 150 or old Ranger, and bigger Dodge trucks.Some American trucks are more durable than cars.I think the Dodge Ram might just be a status symbol, IDK.
I really like the look and build of the 4×4 Ford explorers and Bronkos, but if I had the money I would be hesitant to buy a new one as they cost about the same as a base Toyota.They just didn’t stick or last long.
Post time: May-06-2022