“Kicking tires” is a well-known phrase in the automotive industry when shoppers walk into the dealership and look at all the cars available, usually with little intention of buying that day.
But there’s less tire rubber to kick these days. Most buyers are there for a purpose – either the vehicle they ordered has arrived or they have to order one that is not available in the field.
“It’s like Christmas morning when we see a truckload of cars arrive – most of them already have a customer’s name on them, while the few other new cars only last a few days before being sold. . We sell just about everything we have,” said Laurie McCants, Honda of Covington Managing Partner/General Manager. “Unfortunately, like many dealerships, our 13-acre lot has more empty concrete than inventory. We’ve had to adjust to this new normal over the past two years.
McCants estimates inventory is down about 200% from pre-COVID years. The dealership was then selling an average of about 250 new cars per month; now they get 80 new cars a month, and all of them are sold out quickly, she said. Wait times can average 1-2 months, depending on brand, model and accessories.
“It’s hard to give that nostalgic feeling of coming into a parking lot, testing multiple cars, and driving away the same day with the car you want,” McCants said. “But we’ve seen wait times improve over the past two years, and we can work with the customer to cross-reference our manufacturer’s availability and place them in a new vehicle.”
Lower sales of new cars; prices increase
The pandemic has thrown the auto industry into a world of supply chain problems and shortages of computer chips, which has prevented manufacturers from building enough new cars to meet demand. Because demand is up and supply is down, people buy new cars at or above the manufacturer’s suggested retail price (MSRP).
JD Power reports that over the past 12 months, the prices of new vehicles have increased by 15 to 20% against a 2-3% increase between 2012 and 2018. New vehicle prices continue to set records, averaging $47,148 in May, a 16% increase from a year ago and the second highest level on record. Non-luxury buyers pay $1,030 more than the MSRP. Luxury buyers pay $1,071 more than the MSRP.
“High prices offset lower inventory and lower sales transactions,” said Will Green, president and CEO of the Louisiana Automobile Dealers Association, which represents 350 new car and heavy-truck dealerships in Louisiana. .
“The demand is definitely there,” he said. “A guy drove 500 miles from Arkansas to one of our dealerships to buy a car he knew was coming. Demand will remain high despite rising gas prices and inflation , and our members have become diligent in resolving their inventory and manufacturing issues to help customers as much as they can.
New car sales transactions declined. In the five years before the pandemic, new car sales averaged 17.3 million per year; in 2021, there were 14.9 million sold (-16%), according to Statista, a consumer and market data provider. Through May 2022, 5.6 million new cars were sold, down from 13.6 million for 2022. New vehicle sales of 1.1 million units for May were down 11.2% from compared to April 2022 and a 30% drop from May 2021, according to MarkLines Data Center, which provides monthly automotive market forecast reports.
Used car prices and trade-in values rise
In 2021, 40.9 million used cars were sold in the United States compared to 14.9 million new cars. In 2019, 40.8 million used vehicles were sold, meaning used car transactions remained stable, while new car sales transactions fell, according to Statista. The new car situation has had a ripple effect on the used car market, said Emilie Voss, director of public relations for CARFAX. CARFAX collects information from 130,000 data sources nationwide and provides a Used Car Sales Assessment Tool over 28 billion records.
“Used car prices have increased and transactions have remained stable since the pandemic. People are getting the maximum they got for their trade-in vehicles,” Voss said.
Before the pandemic, the price of a used car averaged $18,000; now the average is $27,591 (+53%). This sales figure is also up 15% from the May 2021 average of $23,995. CARFAX tracks used car prices by city, and in New Orleans, the median dealer listing price on CARFAX used car listings in May 2022 was $28,742. In May 2021, that number was $21,995 (+21%).
“New Orleans is reporting a similar trend to what we are seeing nationally, and we expect higher used car sales and prices to continue while new car inventory remains below the pre-pandemic pace,” Voss said. “We are still seeing dealerships aggressively calling their customers to see if they are willing to trade in vehicles.”
According to JD Power, the average trade-in value for May was a record $9,922, an increase of 59.4% from May 2021. According to a Cars.com poll99% of dealers said they pay more for trade-ins now than they did in 2020, and one in three dealers said their payments increased by 20%.
“People are amazed at what their cars can be worth during this necessary inventory period, so if people are interested in doing a trade-in, it might be worth going to a dealership and checking it out,” said Gerard Douglas, General Sales. Manager and Opportunity Manager at Toyota of New Orleans.
Douglas said they have 10 new cars in the field per day, compared to 50 before COVID. They are on average 60 used in the field, compared to 100 before the pandemic. The new trend to watch? People are trading SUVs and trucks for more affordable gas price options, he said.
“Sales managers have learned over the past couple of years to adapt to whatever trends the market throws at us,” Douglas said. “Our mantra is to keep units rolling and the pipeline flowing every month, so we’re ready to work with customers to source whatever they need, new or used.”