Dealer Markups Might Finally Be Done As New Vehicle Inventory Increases

Industry News / 12 Comments

This gives consumers more buying power.

New vehicle inventory for car dealers across the country has nearly returned to pre-pandemic levels, according to a report from Kelly Blue Book. This is excellent news for those in the market for a new vehicle after a few years of frequently ridiculous dealer markups because of a lack of inventory.

Automakers were forced to shut down their assembly lines when the pandemic was at its worst beginning in 2020, resulting in a massive new vehicle shortage. Then the semiconductor shortage hit, and matters got even worse. Dealers had to make up the difference somehow, hence those nasty markups. But that now appears to all be in the past.

The report states that the country's dealers finished March with 1.89 million new vehicles in stock, which is about where they were pre-pandemic. Dealers measure their supply with a metric called "days of inventory," which represents how long it'd take them to sell out of new vehicles at current sales rates if new inventory wasn't available.

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Ideally, dealers want to keep a 60-day supply on hand and have another 15 days' worth of vehicles on the way. But that all changed during the pandemic and remained that way for two years thanks to the supply crisis. It wasn't only dealers that took a hit. New car buyers not only had to deal with markups, but they also could not get the cars they wanted in terms of features, color, and even the exact make and model. It was a take-what-you-can-get type of situation.

Things are looking brighter now, with the average dealer having a 56-day supply of new vehicles on hand - an impressive 58% increase from last year.

"During March, we saw sales surpass the 1-million mark for a 30-day period for the first time since early September 2021," said Charlie Chesbrough, a senior economist at Cox Automotive. "Higher sales have been boosted, in part, by improving inventory, which has been running at around 1.8 million or so for the past several weeks."

With new vehicle inventory nearly back to normal, dealers will now have to go back to competing with each other for business.

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The average new vehicle asking price dropped to below $47,000 last month. That's still not cheap but is certainly better than the $50k average price a Toyota executive predicted last month.

But just because inventory is increasing does not mean all automakers and their dealers are in the same position. For example, luxury brands like Lexus, BMW, and Land Rover still hover below a 30-day supply. Foreign brands in general, including Toyota and Kia, are also under that 30-day mark, while domestic brands, led mainly by Stellantis, are doing better. Ram, for example, is at the top end of the spectrum with a 119-day supply, followed by Jeep and Chrysler. Even Buick, which is classified as luxury, is doing just fine with a 117-day supply.

Popular models like the Kia Telluride, Subaru Crosstrek, and Toyota RAV4 have less than a 30-day supply. But the Ram 1500 is at a 102-day supply, and the Ford F-150 and Chevy Silverado are hovering between 80 and 90 days. Given everything that happened during the pandemic, it's incredible how quickly automotive production has recovered and continues to do so.

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