Price hikes on cars could be here to stay, thanks to the pandemic

Price hikes on cars could be here to stay, thanks to the pandemic

The auto industry inventory crunch that is fueling higher list prices could end discount buying at car dealerships, analysts said.AutoNation CEO Michael Manley told Bloomberg this week that new vehicle rebates would not return to pre-pandemic levels. Instead, the pandemic has shifted the market toward selling new vehicles at prices closer to the manufacturer’s suggested retail price, commonly referred to as MSRP.

“What the pandemic has really done is hit a reset button on inventory balance,” Manley said. “You will see some attenuation in terms of margin on new cars, but I really believe that lesson is now embedded, and they will not, in my opinion, return to 2018, 2017 margins.”

Marc Cannon, executive vice president of AutoNation, said Friday that consumer demand remains strong despite low inventory. The industry adjusted during the pandemic, resulting in a market that may have changed forever, Cannon said.

“Manufacturers and dealers have all learned through this pandemic that overproduction is not a smart thing to do. And that you really have to produce at the level of demand. Price discounts are something that will not come back into the market,” he said.

New car prices hit a record average of $47,077 in December, according to a Kelley Blue Book report, more than $10,000 more than the typical customer was paying before the pandemic.

Last year, automakers battled semiconductor shortages. Other supply chain issues have been exacerbated by coronavirus outbreaks that have prompted factories to close while leaving some showrooms bare. This meant fewer cars on dealer lots and record prices.

Tyson Jominy, vice president of data and analytics at JD Power, responded to a post on Twitter with a similar prediction: “New car discounts may never return post-pandemic.”

“They go,” he said.

John Murphy, an automotive equity research analyst at Bank of America, said Friday that supply chain issues are expected to continue this year and remain a significant issue through 2023.

He disputed that it is in the auto industry’s best interest to keep inventories low.

“There’s nothing the automaker would like to do more than make more vehicles and sell them. There’s nothing artificial or anything being held back here,” he said. he declares.

Low dealer inventory is particularly affecting buyers who do not have a vehicle to trade in. They’re going to feel it in their wallet, Murphy said.

“You’re going to have a bit more pain than the person who already owns an asset, being a vehicle, that’s going to be traded in to buy a newer used vehicle or a new vehicle,” he said.

On the other side of that, Murphy said, other potential buyers get the best price for the cars they trade in.

“The current reality is that if you own a vehicle and want to buy a new one, you get high value for your trade-in. So when you’re buying a new vehicle, those high prices aren’t too bad. They’re not great, but they’re not too bad.

Cox Automotive predicts a moderate rebound in the industry this year in terms of new vehicles produced, to around 16 million vehicles. That’s an increase from 14.9 million in 2021. But that figure is still far below pre-pandemic car production figures.

Americans bought 17.1 million new passenger vehicles in 2019.

Falling inventories have pushed up car prices, including those of used vehicles, Jominy said, adding that there have been additional changes that have emerged during the pandemic.

“It has been difficult to produce the cars we need. But at the same time, there has been a shift in demand,” Jominy said, adding that demand for SUVs and pickup trucks remained “robust.”

“We are also seeing increased demand for luxury vehicles, which have had some of their best sales months” during the pandemic.

Paul A. Eisenstein contributed.