GOOD NEWS FOR CAR SHOPPERS: AUTOMAKERS, DEALERS CAN’T MAINTAIN THE PERMANENT CAR SHORTAGE THEY HOPED FOR

The old way: More cars than shoppers

For much of its history, the auto industry has intentionally maintained an oversupply of new cars. Automakers and dealers often aimed to keep about 60 selling days’ worth of built vehicles in storage, believing that level of inventory helps dealers make sales. It meant they likely had the combination of colors and features you wanted in easy reach.

The pandemic way: More shoppers than cars

The pandemic and the subsequent global shortage of microchips left many with far fewer cars in stock.

Far from limiting sales, the shortage raised prices. Americans continued to car shop and briefly paid more than the sticker price for most cars.

Tyson Jominy, vice president of data and analytics at J.D. Power, tells Automotive News that the industry learned “that we can operate at lower inventory levels.”

‘We’ll never go back’

Some prominent industry leaders said they’d learned their lesson and would not return to keeping a stockpile.

BMW Chief Financial Officer (CFO) Nicolas Peter, in 2021, said the company would maintain a shortage indefinitely “to keep pricing power at our current level.” Harald Wilhelm of Mercedes-Benz said the company would “consciously undersupply demand level” to sustain shortage pricing.

GM CEO Mary Barra told reporters in May of 2021, “We’ll never go back” to keeping an oversupply of cars.

They went back.

How they went back

Automakers ended February with, on average, 72 days’ worth of new cars to sell – 12 over the target they said they wouldn’t return to. Every GM brand ended February with more than a 60-day supply, with Buick at over 150% of the target. Mercedes closed the month with 91 days in stock.

See: ‘Automakers are sweetening deals’: The average new car price is down; inventory is up

That oversupply has meant discounts. The average new car sold at a 5.9% discount in February, up from 3.1% a year ago.

What happened?

The natural laws of competition, Jominy says. Lower inventory levels proved “not sustainable because it requires the participation of 30-plus automakers to maintain discipline. This is a fixed asset industry, so we always will need to produce more.”

Dealers, too, have been pushed back into old habits. “Between pressure from automakers to achieve sales targets and competition from other dealers to satisfy consumer desires and secure a sale, many, if not most, dealers are reluctant to turn away new-vehicle inventory,” AN explains.

See: Good news: Car prices are falling. Bad news: It’s a terrible time to trade in your car. Here’s why.

A buyer’s market

That has turned 2024 back into what Jonathan Smoke, chief economist for Kelley Blue Book parent company Cox Automotive, calls “a buyer’s market.”

The Federal Reserve’s reluctance to enact promised interest rate cuts still holds back many buyers. But new car affordability recently hit a 31-month high thanks partly to automakers not keeping their promises about a permanent car shortage.

Read: Auto sales dip in March due to high prices and high borrowing rates

This story originally ran on KBB.com.