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Vehicle Inventory Historically Low

There can be many impediments to buying a new vehicle. COVID has certainly created a wide variety of barriers to the manufacturing and sale of a new vehicle.  Supply chain disruptions and distressed suppliesemergency orders inhibiting the ability to meet in person, not to mention the general recession across the United States and the world.  Add a new one for the industry to deal with: low inventory.

Yes, vehicle inventory has dropped to historic lows. Inventory of new cars dropped as low as a 62 day supply this summer.  This is well below the mark of 79 days from July 2019. Some large OEMs had inventory supply of below 40 daysWhen COVID hit in March, dealers had 3.4 million vehicles in inventory.  Now, that number is down to 2.2 million. This is kept sales rolling and led to some profitable months for dealers and the industry.

Not surprisingly, truck inventory pulled those averages down. Also not surprisingly, as inventory dropped, prices rose (recall your supply/demand economics classes). Low inventory does not just mean less vehicles to sell, but less variation of those vehicles is available. Most people can think of their top five items that they want in a new car, but those top five items are not always the same. This means that even if  a consumer wants to buy a vehicle, they may not be able to buy what they want. “It's not only an issue of do we have enough overall inventory, but do we have the right inventory," Charlie Chesbrough, senior economist for Cox, said on a call discussing Cox's auto sales forecast.

And, it is October. Dealers should be striking deals to get 2020 models off the lot and makes space for 2021 models.  2021 models may not actually show up until 2021.  That is unheard of. With the 2021 model year part of an ongoing transition in the industry – multiple transitions – it might be the shortest, least interesting model year in decades. There are transitions to power trains (electric), transitions to autonomous levels, and transitions in the entire sales structure of the industry (online).  As of now, only 3% of inventory is new model years, compared to what should be 25% at the same stage.

As it is, sales in 2020 are expected to end a lengthy string of exceeding 17 million vehicles passing through North America’s showrooms. All things considered, sales approaching 14 million vehicles is actually quite impressive. But the lack of inventory now, and in the pipeline, combined with the ongoing challenges in production and employment due to COVID do not bode well for 2021 seeing any kind of quick turnaround for the industry.

And, there is an election. The regulatory and business environment could be almost anything 60 days from now, or 90 days, or 180 days. Predictability for the automotive industry has been hard to come by recently, and this election season has not helped.  At the end of the day, the automotive industry is no more immune from the craziness of 2020 (and maybe 2021) as most other industries.

© 2022 Foley & Lardner LLPNational Law Review, Volume X, Number 282
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About this Author

Legal, Business, Jeffrey Soble, Class Action Attorney, FOley Law FIrm
Partner

Mr. Soble’s practice focuses on class action defense, post-transaction disputes, products liability, construction losses, and general contract and tort law. He is experienced in supply chain management and contract enforcement, in particular with limited or sole-source suppliers and just-in-time suppliers. He has further experience in the litigation of insurance coverage claims. Mr. Soble is a member of the Business Litigation & Dispute Resolution Practice and former co-chair of the Automotive Industry Team. He is the co-editor of Dashboard Insights, the Automotive...

312-832-5170
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