Sales strong and prices high through January despite below average inventory

Through the month of January, auto sales ticked higher than December 2020 as the pandemic recovery continues. With a January SAAR of 16.6 million units and just 3.7% fewer sales over last January, the automotive retail sector has been rebounding to near normal levels. That’s reflected in the average list price that’s been sustained above $40,000 for some time now, and at $40,474 for the month.

The Cox Automotive report from Thursday pointed to below average U.S. supply of new cars as a main reason the new vehicle list price has crept higher and held its ground. At this time last year, approximately 3.35 million new vehicles were available nationwide. At the end of January, that figure was slightly more than a half-million units lower.  

A seller’s market 

Momentum has swung to auto retailers with tighter inventory levels. Sitting at around a 6% increase year over year, record average listing prices nearly broke the $41,000 mark in the first week of January before pulling back. Sales departments are able to hold gross on their deals, and those buying cars are snapping them up before prices rise even higher on yet another inventory shortage. 

Charlie Chesbrough is a senior economist at Cox Automotive. He says, “Inventories remain lean in the industry, and the chip shortage will make matters worse. However, tight supplies haven’t hurt sales. Sales results in December and January were surprisingly strong.”

It’s a great time for dealerships to thrive. Those with conservative inventory levels could be feeling the bottleneck in supply though, especially Toyota and GMC dealers. While Toyota claims they have a steady supply of chips, the non-luxury brand only had 40 days’ supply. That’s exceptionally lean for the industry as the average is 66 days now, and a far cry from last January’s 82 days’ supply. 

GMC has just 41 days’ supply while Chevrolet is slightly better at 51. All other mainstream brands are very near or above the industry average.  

Inventory crunch remains the hot topic 

Conversation continues to swirl regarding semiconductor chip availability. Nearly all brands have been affected, but there is a bright side to tight inventory levels for dealers. In addition to holding profit, operating costs related to inventory are lower. 

Chesbrough says, “Tighter supplies may become the new normal, at least for the time being.  With sales strong and inventories tight, manufacturers can save money because incentives can be relatively modest. Dealers save by carrying less inventory, which lowers their financing costs. Yet vehicle prices stay high. Those factors – lower costs and higher profits – add up to strong profit margins. Manufacturers and dealers will have little incentive to build their inventories to pre-pandemic levels in that scenario.”

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