Uncontrollable car prices reduce sales
If you wait for car prices to cool down, you’re not alone. Sales are down for the second consecutive month here in the United States as dealers continue to exceed MSRP.
There’s a lot going on in the automotive world right now. On the one hand, there is a lot of pent-up demand from Americans who did not buy a car during the quarantine and lockdowns of 2020. On the other hand, there is little supply to meet it. A global semiconductor shortage has hurt the auto industry the most, as even the semiconductor chips that are manufactured are destined for technology companies. Automakers reduced their orders at the start of the pandemic and are now the last to line up for an already reduced stock of chips.
Sales of imported vehicles fell 13.1% from the previous month, while sales of domestic vehicles were also down, down 8.7% overall, with auto sales falling 11 , 2% and truck sales by 8%. The declines have driven car sales below their pre-pandemic level.
“Vehicle sales have contracted for two consecutive months as extremely high prices, especially for used cars, reduce demand,” Mahir Rasheed of Oxford Economics said in a research note.
We’ve been writing about runaway demand for cars for weeks, and none of this news of a sustained decline in sales surprises me. I was just writing about auto dealers who compete with repeat buyers for clean up local Craigslist and Facebook Marketplace listings and my colleague Erik Shilling cataloged resellers regularly priced cars well above the sticker. On Thursday we explained how dealers are simply running out of new cars for sale citing the Wall Street Journal. Sales looked good for the quarter overall, but analysts were expecting a slowdown, as the WSJ explained:
The pace of sales slowed considerably at the end of the second quarter, falling to an annualized sales pace of $ 15.4 million, according to research firm Wards Intelligence. That’s down from April, when the industry was close to selling nearly 19 million vehicles for the year. The industry tracks the annualized sales rate as a measure of month-to-month market strength because it eliminates seasonal factors.
Analysts attribute the deceleration to shrinking dealer inventories. Dealers began June with around 1.5 million vehicles on their lots or on their way to stores, down 42% from the same period in 2020 and down 23% from early May , according to Wards Intelligence. The decreasing selection pushes prices to record highs.
I don’t know if the problem is necessarily that the prices are high in general. Car prices have been on the rise for years now. They peaked at $ 40,000 in 2020, as we wrote earlier this year, but it almost sounded like old news. In 2019, Edmunds reported gasping for breath on car prices hitting an “all-time high” of around $ 36,000, up nearly 30% from the same period 10 years ago. Americans are no strangers to soaring car prices. What seems new is that so many dealers are asking thousands of people for the sticker price for cars. Higher prices in general, we all know, are inevitable. Getting asked about the sticker looks like something we can expect.