In today’s insightful conversation on Inside Automotive, Kevin Tynan, director of Research at The Presidio Group joins host Jim Fitzpatrick to unpack the latest market dynamics affecting car dealers and manufacturers. From the ripple effects of tariff threats to changing inventory patterns, Tynan offers a detailed analysis of why today’s sales numbers don’t tell the full story and what it could mean heading into summer.
Sales activity in March and April surged well above the annual pace, hitting a seasonally adjusted 17.8 million in March and 17.3 million in April, compared to a broader 2024 annual pace of 16 million units. However, Tynan points out that this spike was not organic. Instead, it was a pull-forward in demand sparked by updated tariff threats which caused consumers to act quickly to avoid potential price hikes.
With some of that tariff pressure easing—thanks to deals with the UK and ongoing talks with China—Tynan expects a moderate sales hangover in May and June. Despite this, he believes the year will still shape up to be a strong one overall, though the industry should not expect monthly volumes to remain in the 17 million range.
Tynan highlights the significant distinction between demand-driven and incentive-driven sales. The recent surge was demand-driven, which tends to support stronger pricing and margins. In contrast, sales driven by oversupply typically rely on aggressive incentives, undercutting profitability.
Inventory data also supports a cautious optimism. It took about 10 months to grow inventory from 2 million to 3 million units, but since peaking at 3 million in mid-2024, inventory has actually declined. Tynan sees this as a sign that automakers may be exercising more production discipline, learning from the profitability highs seen during inventory shortages in 2021 and 2022.
He notes that a 60-day supply is considered manageable industry-wide, with domestic brands often exceeding that level and Asian brands typically staying well below it. For example, some high-volume Toyota dealers have maintained a 15 to 25-day supply for years, emphasizing leaner operations.
Despite differing philosophies across manufacturers, the U.S. market’s demand line remains stable, typically between 1 million and 1.5 million units sold monthly, regardless of inventory levels. Tynan estimates that an inventory range between 2 and 3 million units supports a healthy two-month supply, aligning with current conditions.
Tynan also highlights the financial upside of scarcity, referencing luxury brands like Ferrari and Porsche that constrain supply to preserve pricing power. He believes that 15.5 million annual units may be the industry’s “sweet spot” for maximizing profits without requiring steep incentives to move excess inventory.
The challenge, however, lies in reconciling that optimal demand level with an industry capacity built to produce up to 18 million units. Manufacturers must grapple with the costs of underutilized plants, which often leads them to continue building vehicles even without immediate demand, an approach that could undermine long-term pricing power.
"There's value in that scarcity. It's a fine line between not enough and too much. COVID was a great example as inventory got really low. You were matched up like 30 30-day supply, but profitability for the retailers was a record best ever." – Kevin Tynan
