How long have we been waiting for inventory levels to return to normal? At this point, the ongoing inventory crunch in both new and used cars is just part of the environment, but we know it’s not permanent: while we’re not seeing much concrete evidence of an easing of supply pressure, there are indications that it’s not too far off.
That said, there are multiple factors that seem poised to delay a return to normal. In addition, “normal,” when we do get there, might not look the same as it used to. The days of a 60+ day supply being the standard might be behind us, as industry-wide changes like the rise of digital retail and build-to-order continue to evolve.
Here’s a look at some of the factors we’re seeing and what they will mean to dealers, with one small warning: they all change quickly, and the picture may have changed between writing and publication.
To answer a question like this, we first turn to the data. At CarGurus, we’re lucky to have a huge amount of real-time data on vehicle availability, pricing, and time to turn, which our Industry Analyst Kevin Roberts uses to publish the monthly Vehicle Availability Index.
The VAI compares month-end inventory per dealer to a starting point of November 2019. The most recent index, for February 2020, showed new car availability barely down over January, but still down almost 70% YoY. Prices were just slightly up for the month and sit 25% higher than last February.
The picture is better on the used side, with the index up 2% over January and up about 5% YoY. As with new vehicles, prices were barely up over January, but YoY used prices are up 39%. What was interesting on the used side was that we saw the first signs of declining prices throughout most of the month, which made sense given that used inventory was back to pre-pandemic levels. However, the decline didn’t hold as consumers continued to snap up vehicles across a wide range of prices and styles.
Early in the year, there seemed to be more potential positive factors that would help get more vehicles back on dealer lots. Here’s some of what we’re watching that could help the rebound, in a rough order of most to least likely impact.
Unfortunately, as we’ve gotten through Q1, it seems like those positives are starting to get outweighed by an accumulating pile of negative factors. Supply chain issues continue to be the biggest threat – and it’s not just about chips anymore. Industry analysts downgraded production forecasts in response to two big developments in Q1:
Those two factors, combined with ongoing semiconductor shortages, have the potential to push out the return to normal inventory levels to the end of 2022 or longer. But they’re not the only threats:
Finally, and I can’t believe I have to say this, we’re also hoping no more container ships full of cars catch fire. It might not have had much real impact on the market, but the symbolism was just a bit too much.
Over time, we know that consumer demand, OEM production, and dealer pricing will return to a more normal balance. It might not be the same as it was in 2019, but it won’t look like the craziness of the last two years. Overall, it seems like the return to normal is being delayed by the combination of new economic, supply chain, and political factors. We expect markets to head towards more typical levels late in the second half of 2022, but we’re going to keep an eye on those negative factors to see if that gets pushed out further.
With over 20 years of digital marketing experience, Jeremy has worked through multiple waves of innovation and evolution in connecting buyers and sellers, focusing on the common thread of effective communication in new platforms and old. As director of B2B content and communications at CarGurus, Jeremy leads messaging and content production across all dealer-facing marketing activities. Prior to CarGurus, he managed content marketing at Fiksu DSP, a mobile ad tech company, and BuyerZone (now part of Purch), a B2B lead gen provider.
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