This month is likely to be a very good time to buy a new car in the US. The reason is that auto manufacturers had believed that a recovery in consumer spending and the economy had become inevitable. Thus they had built inventories of new cars in anticipation of the sales rush.
These are now at a 9-year high according to analysts Ward Autos, with those for cars at nearly 95 days of sales. Total inventory of 3.6m was the highest since the 3.9m seen in January 2005.
Of course, no car company now wants to admit they made a mistake. So as yet, there have been no major cutbacks in car production. Yet data for February sales, just released, shows these were down for the 3rd month versus the previous year, and that year to date sales in 2014 are down 1% versus 2013.
The automakers blame the weather, of course, although it is hard to believe potential buyers have been unable or unwilling to visit their dealerships for the past 3 months.
But they are realistic, and also know that the used car market is starting to become attractive again to buyers. Edmonds.com see an extra 500k used cars coming into the market in 2014, as new car sales picked up from 2011. In turn, they expect used car prices to start falling – quite a change from the 18% increase seen since 2007.
So the position for March is set to become very competitive:
- Automakers have high inventory levels which they must start to sell
- March is also typically the strongest sales month of the year, so missed sales will be hard to replace later
- User car inventories are rising and used car prices are falling
The chart above highlights the direction of travel. Average incentives at $2.6k were up 3% versus January and up 5% versus a year ago. Companies such as Honda have had to increase incentives by 46% versus a year ago. In turn, this has put pressure on the leaders to respond:
- Ford’s spending was up 16% versus a year ago
- GM and Chrysler have had to raise incentives again, having tried to cut them until recently
- Toyota’s spending was up 23%, and yet their February sales were still down 4% versus 2013
The blog therefore suspects that March will be a strong month for US new car sales. And whilst manufacturers will hope that it marks the start of a sustained recovery, it seems more likely that the most successful dealers will be those with the best incentives.