New cars became more expensive during the pandemic due to lower stocks at dealers.
Even as supply chains recover, prices for new cars can remain high forever.
Car companies and their dealers are enjoying big profits and want to keep the supply of cars low.
If you’ve been waiting to buy a new car until the next “memorable December” sale, forget about it: Big discounts from car dealers may never come back.
New cars are getting more expensive during the pandemic thanks to a computer chips shortage It dwarfed the supply of cars and drove automakers to focus on building more expensive models. But there’s another reason entirely for car shoppers to expect stocks to stay tight and prices stubbornly high in the long run: car companies and dealers love them.
They’re used to the solid pricing power and fatty profit margins that a supply crunch gave them and they have little incentive to get back to the way things were before the pandemic, when lots of dealerships were flushing and manufacturers had to offer deep discounts to move cars to customers.
“The industry is going to have to go a long way back to the oversupply model, to get back to where prices, bargaining and incentives are where they were before, and there’s no need to do that,” said Kevin Tynan, senior auto analyst at Bloomberg Intelligence, for Insider.
Automakers could build up their old production volumes and lose control of prices. But many have made it clear that they are intent on maintaining this new paradigm, or at least something close to it.
in Interview with InsiderScott Keogh, CEO of Volkswagen of America, said he “definitely” sees a significant reduction in supply as the “new normal”. Last year, Ford CEO Jim Farley said the company is “Wasting money on incentives” It aims to keep stocks well below pre-pandemic levels.
At the beginning of May, American merchants 1.13 million new cars on hand, 2.2 million fewer than the same time in 2020, according to Cox Automotive. As a result, the amount that merchants can charge has gone up.
In April, the average new car sold for $45,736, which is $685 above the manufacturer’s suggested retail price, according to Edmunds. Average spending three years ago was about $37,000, including a $2,500 MSRP rebate. Those heights are particularly mind-boggling for coveted models like the Jeep Wrangler SUV, which now commands nearly $9,000 above the label, according to an automotive researcher. iSeeCars.
It’s clear to see why automakers like the way things go; They are making more money even amid declining sales. In 2021, GM’s profit jumped 47% to $14.3 billion Although 500,000 fewer cars were sold than the previous year.
The dealers have also done very well and want the party to continue. Mike Manley, CEO of AutoNation, the nation’s largest auto dealer, told Bloomberg that the pandemic has occurred Pressing the “reset button” for car sales, adding that cars will be sold for MSRP from now on and the big discounts expire.
Pete DeLongchamp, senior vice president at Group 1 Automotive, a large group of dealers, told Insider he hopes dwindling stocks will return to a “balance” that’s easier on buyers but maintains the company’s strong margins.
These bargaining shoes do not close yet.
Historically, automakers have missed opportunities to switch to a slimmer, more profitable way of doing business, according to Tyson Gomini, vice president of data and analytics at JD Power. Keeping prices high will require discipline everywhere, he said, and if some automakers start flooding the market with cheaper cars, the entire house of cards could collapse.
“Despite a lot of advertising in the past and the industry has had more profitable times when volumes are a little lower … eventually the pricing system breaks down and we kind of go back to the old ways,” Jomini said.
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