Lower inventory, sales at local auto dealerships

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“Kicking tires” is a well-known expression in the automobile industry when shoppers walk around 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 nowadays. Most shoppers are there for a purpose – either the vehicle they ordered has arrived, or they need to order one that is not available on the lot.

“It’s like Christmas morning when we see a truckload of cars come in – most of them already have a customer’s name on them, while the few other new cars only last several days before they are sold. We pretty much sell whatever we have,” said Laurie McCants, managing partner/general manager at Honda of Covington. “Unfortunately, like many dealerships, our 13-acre lot has more empty concrete than inventory. We have had to adjust to this new norm for the last two years.”

McCants estimates inventory is down about 200% from pre-COVID years. The dealership averaged about 250 new cars sold per month then; now they receive 80 new cars per month, and all are sold quickly, she said. Wait times can average 1-2 months, depending on make, model and accessories.

“It’s hard to deliver that nostalgic feeling of coming on a car lot, test driving several cars and then driving off the lot the same day with the car you want,” McCants said. “But we have seen wait times improve over the past two years, and we can work with the customer to cross reference availability from our manufacturer and place them in a new vehicle.”

New car sales decrease; prices increase

The pandemic forced the automobile industry into a world of supply chain issues and computer chip shortages, resulting in manufacturers’ inability to build enough new cars to meet demand. Since demand is up and supply is down, people are buying new cars at prices at or above the Manufacturer’s Suggested Retail Price (MSRP).

J.D. Power reports that during the past 12 months, new-vehicle prices have increased 15-20% compared with a 2-3% increase between 2012-2018. New-vehicle prices continue to set records, with May’s average at $47,148 — a 16% increase from a year ago and the second-highest level on record. Non-luxury buyers are paying $1,030 over MSRP. Luxury buyers pay $1,071 over MSRP.

“High prices have offset lower inventory and fewer sales transactions,” said Will Green, president and CEO of the Louisiana Automobile Dealers Association, which represents 350 new motor vehicle car and heavy truck dealers in Louisiana.

“The demand is definitely there,” he said. “A guy traveled 500 miles from Arkansas to one of our dealerships to purchase a car he knew was arriving. Demand will remain high despite rising gas prices and inflation, and our members have become diligent at working through their inventory and manufacturer issues to help customers as much as they can.”

New car sales transactions have gone down. 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 provider of consumer and market data. Through May 2022, there have been 5.6 million new cars sold – on pace for 13.6 million for 2022. New vehicle sales of 1.1 million units for May represented a decline of 11.2% from April 2022 and a 30% drop from May 2021, according to MarkLines Data Center, which provides automotive market forecast reports every month.

Used car prices, trade-in values rise

In 2021, 40.9 million used cars were sold in the U.S. versus 14.9 million new cars. In 2019, there were 40.8 million used vehicles sold, meaning used car transactions have held steady, while new car sales transactions dropped, according to Statista. The new-car situation has had a trickle-down effect on the used car market, said Emilie Voss, public relations director for CARFAX. CARFAX collects information from 130,000 data sources nationwide and provides a used car sales figure valuation tool of over 28 billion records.

“Used car prices have increased and transactions have held steady since the pandemic. People are getting the highest they have gotten for their trade-in vehicles,” Voss said.

Pre-pandemic, a used car price averaged $18,000; now the average is $27,591 (+53%). That 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 reports a similar trend to what we are seeing nationally, and we anticipate higher used car sales and prices to continue while new car inventory remains below pre-pandemic pace,” Voss said. “We are still seeing dealerships aggressively call their customer base to see if they’re ready to trade in vehicles.”

The average trade-in equity for May was a record $9,922, a 59.4% increase from May 2021, according to J.D. Power. According to a Cars.com survey, 99% of dealers indicated they are paying more for trade-ins now than 2020, with one in three dealers saying their payouts have risen 20%.

“People are amazed at what their cars can be worth during this time of needed inventory, so if people are interested in doing a trade-in, it could be useful to go a dealership and check it out,” said Gerard Douglas, general sales manager and pre-owned director at Toyota of New Orleans.

Douglas said they have 10 new cars on the lot daily, compared to 50 pre-COVID. They are averaging 60 used on the lot, compared to 100 before the pandemic. The new trend to watch for? People trading in SUVs and trucks for more affordable gas price options, he said.

“Sales managers have learned over the last two years to adjust to any trends the market has thrown at us,” Douglas said. “Our mantra is to roll the units and keep the pipeline flowing every month, so we are ready to work with customers to find whatever they need, new or used.”