Economical Cars, Hybrids, Small SUVs Suddenly Hot, Inventories Depleted. But Supply of Trucks & Full-Size SUVs Rises

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by Wolf Richter, Wolf Street:

Funny how that works when gasoline prices spike.

Inventory of new vehicles at dealers at the beginning of May ticked up again, but only by a hair, to still only 1.13 million vehicles, according to estimates by Cox Automotive, based on its Dealertrack data, released last week. This was down 45% from a year ago and by 71% from the old-normal times, April 2019.

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Since July last year, inventory averaged 1.04 million vehicles. By contrast, in 2019, inventory averaged 3.66 million vehicles. You can see the improvement in inventories, but they’re painfully slow.

And there’s another thing showing up: Inventories are finally rising for trucks and full-size SUVs – the gas hogs – while economical cars, hybrids, and small SUVs are now in shortest supply, and dealers are essentially out.

For potential buyers, this inventory shortage sucks. Many have given up for now. Others have ordered vehicles and are patiently waiting months or many months for them to get built. For the industry, these ordered units don’t count as sales, and they reflect just future demand. They only count as sales when they’re finally delivered to the customer.

Production in the US and globally continues to improve while still constrained by the semiconductor shortages, which now may drag into 2023, and production shutdowns in China, where many components are made. In addition, European automakers are now struggling with shortages of wiring harnesses that were produced in Ukraine.

Early last year, new vehicles started selling above sticker, and it continues to this day. Manufacturers have slashed their incentives to dealers, and given the supply crunch and the absence of competition – given that dealers in general don’t have enough inventory to sell – dealers have gotten away with selling to even astute car buyers above sticker, which has led to the biggest jump in new-vehicle CPI data going back to the 1950s.

With little supply, sales plunge.

New vehicle sales in April plunged 19% from April last year, to 1.23 million vehicles, right back in the middle of the range in the 1970s and 1980s.

This isn’t a sign of low demand, but a sign of low supply, given that dealers had very little inventory to sell at the start of the month and still had little inventory to sell at the end of the month, and potential buyers left empty-handed and frustrated, or stopped shopping altogether and decided to wait until this craziness has blown over, or ordered a vehicle with an uncertain delivery date:

Funny how that always works when gas prices spike: Buyers suddenly want fuel economy.

Overall, days’ supply of unsold new vehicles ticked up to 36 days at the beginning of May, up from 34 days at the beginning of April, according to Cox Automotive. In 2019, the average supply was 90 days.

Lowest supply.

The non-luxury segments with the lowest supply at the beginning of May were those that offer high fuel economy. And many dealers are essentially out of these vehicles:

  1. Compact cars
  2. Hybrids
  3. Small SUVs
  4. Midsize cars.

Among the 30 top-selling non-luxury models, the models with the lowest supply were those with high fuel economy. There are no trucks on this list anymore:

  1. Honda CR-V
  2. Subaru Crosstrek
  3. Honda Accord
  4. Kia Sportage
  5. Toyota Corolla.

Turns out, there’s demand for economical and lower-priced cars, such as the Honda Accord and the Toyota Corolla. US automakers have largely thrown in the towel on sedans, which was an idiotic move to please Wall Street. And consumers who are looking for high-fuel-economy sedans get to choose among import brands. Toyota already gloated about it in March.

The non-luxury brands with the lowest supply, in part because they’re still manufacturing sedans, were all imports:

  • Kia
  • Honda
  • Toyota
  • Subaru

The luxury brands with lowest supply included:

  • Porsche
  • Land Rover
  • Lexus.

Above average supply… here come the trucks and full-size SUVs.

Among the 30 top-selling models, supply of the gas guzzlers is now above average:

  • Domestic full-size pickup trucks: Ram 1500, Chevrolet Silverado and Silverado HD
  • Domestic full-size SUVs, such as the Ford Explorer.

The major brands with the highest supply include:

  • Dodge
  • Ram
  • Chrysler
  • Jeep
  • Audi
  • Volvo
  • Lincoln
  • Buick

Dealers aren’t out of everything.

Overall inventories are woefully low, and overall supply is woefully low, and dealers are essentially out of some models. But with other models, they are starting to build inventories. And some brands have had plenty of supply.

Some brands have supply in the 60-day or higher range, which would be considered normal, such as Alfa Romeo, Volvo, Chrysler, Fiat, Buick, Jeep, Dodge, Ram, and Audi. But just because there is supply doesn’t mean Americans are going to flock to it and buy it.

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