The automotive industry continues to claw its way back from the problems caused by the pandemic. Another milestone it expects to hit is a return to pre-pandemic vehicle inventory levels, or at least getting close.
New vehicle inventory levels have been growing since the end of 2022, as production levels have returned to near-normal rates. Some material problems and labor problems, i.e. the recent UAW strike, did crimp the effort to increase run rates.
However, a new report from Cloud Theory, a data analytics firm, suggests the standing inventory of new vehicles sitting on dealer lots, which was about 3 million, is getting close to being the norm once again. The Grand Rapids, Michigan-based group noted inventory levels rose 6% in December after an 8% jump in November.
“It’s good to see the industry selling more vehicles in December, but the overall trend toward a more supply-dominated environment is still in place,” said Rick Wainschel, vice president of data science and analytics, Cloud Theory.
“OEMs are going to continue growing inventory even as demand doesn’t keep pace, which will inevitably lead to a more competitive marketplace in terms of demand creation and pricing.”
Already making an impact
Wainschel appears to be right on point as inventory levels began rising at the end of 2023 — increasing about a million units on a year-over-year basis — the average transaction price of a new vehicle declined. This can be attributed, in large measure, to a substantial increase in automaker incentives.
New vehicle prices fell 2.4% in 2023, according to Kelley Blue Book. The year-over-year drop in prices came despite an uptick of 1.3% in the year’s final month and higher interest rates. Part of the reason for the decline was increased incentives from automakers as inventory levels returned to normal levels.
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The average transaction price, or ATP, for a new vehicle in December 2023 was $48,759, an increase from November 2023 but down 2.4% from an all-time high reached in December 2022, Cox reported. The market featured several unique scenarios that added up to lower prices paid for new vehicles.
As previously mentioned, incentives and discounts continue to increase as inventory climbs, reaching 5.5% of ATP in December. However, that’s more than double the 2.7% one year ago.
While an increased selection of vehicles to choose from is likely to help spur vehicle sales, the drop in prices is expected to be temporary. Cloud Theory’s report says demand is once again going to outstrip supply in the months ahead.
The delays and down production took about 8 million vehicles out of the system and buyers are still out there looking to put something shiny and new in their driveway. The rise in inventory levels is only going to make that easier.
December new vehicle sales rose, accounting for about 20% of the total. This matches Cloud Theory’s Inventory Efficiency Index which also saw luxury brands like Land Rover, Lexus, Cadillac and BMW see “sharp increases.”