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Did you miss the boat?

We don’t want to say you missed out, but you might have missed out. Most auto manufacturers expected sales to dip as a result of COVID-19. They dipped, and dipped badly, but not as bad as was expected. And with more and more states re-opening, car prices are beginning to rise again.

To give you an idea of how this is all panning out, a Toyota dealer in Birmingham, Alabama, registered 200 vehicles on his lot in May. This was down from a typical inventory of 500. While in early May he was worried those 200 weren’t going anywhere, he is now ordering more and climbing back up to 500 as they are selling much faster than expected.

The drop between sales in May of 2020 compared to May of 2019 was roughly 30%. There was improvement from April to May, but sales are understandably still down. There has been a surge in folks returning leased cars, however, and those will soon flood showrooms. These were vehicles that should have been returned previously but were granted extensions. The interesting pickle consumers will find themselves in now is the demand for a car has increased, but supply is still limited. This is because supply chains were disrupted, which has had negatively impacted the ability of manufacturers to build new cars. The vehicles coming off leases are going to be the attractive offers, but only for those in the market for a used automobile. For the rest, the new models will be those same new models that were available in January or February.

The bad news for consumers will be fewer options of new cars, higher prices, and the third punch to the gut – fewer incentives. Remember being locked down and reading about zero-interest, seven-year loans, and other wacky offers to get us online and clicking “buy” on a car? We do, and those types of offers are frankly a thing of the past. The vehicles that will be in short supply (but surely in high demand) are pricey, pickup trucks. The Chevy Silverado and Ford F-150 are popular models that always sell fast and are running low in terms of available inventory. This is not going to bode well with people with the cash to spend.

But, cash to spend is still going to be slow. HIS Markit expects sales to sink 25% this year. People are going to be buying more in June than in April and May, but not nearly as much as in June of 2019. GM has brought back thousands of workers for their large pickup factories and is trying to ramp production back up as quickly as possible. If there is anything the pandemic has taught us, it’s supply chains matter. Look for manufacturing plants to diversify their parts sourcing moving forward. Depending on one or two critical partners can throw a monkey wrench the size of a skyscraper into the whole mix.

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