New car sales are slowing but price increases aren’t

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Dealers are getting more than the sticker price

New car shoppers are encountering the same problem faced by people trying to buy homes -- declining selection and rising prices.

As a result, Cox Automotive reports that new car sales are slowing after a near-record sales pace in April. Sales were down slightly in May, and company analysts expect a lower but stronger number for June when all the data is in.

Sales volume in June is expected to be up 24% over last year, but it’s lower than the monthly gains seen earlier this spring. Sales volume is expected to decline by nearly 200,000 units from May, a drop driven in part by one less selling day and no big holiday weekends to drive more sales.

“While new-vehicle sales volume in the first half of 2021 is healthy—and on par with the first half of 2019—the market could be stronger if not for the lack of available supply,” said Charlie Chesbrough, senior economist, Cox Automotive. “Concern about the supply situation really cannot be overstated as we are in untested territory for the market.”

The industry has yet to recover from the pandemic. Factories shut down early in the pandemic, and that left the industry with limited inventory to start 2021. Since then, supply chain disruptions have made the issue worse.

A business model from the past

The lack of new vehicles has caused some dealers to change their business model in the post-pandemic world. Instead of consumers roaming a lot filled with vehicles and choosing one to their liking, they are putting in their orders for future delivery, much the way dealers operated decades ago.

Ford has employed this system for two new trucks that have not yet begun production. Dealers are taking orders for the all-electric Ford F150 Lightning and the compact hybrid pickup, the Ford Maverick.

The Maverick will begin deliveries to customers in the fall, and the Lightning is expected to be available in the spring of 2022. Ford said it logged 36,000 Maverick orders the first few days after it began taking them.

Prices are going up

The shortage of cars and trucks means consumers are paying more. Before the pandemic, buyers usually negotiated a price lower than the manufacturers suggested retail price (MSRP) on the window sticker. These days, consumers are paying the sticker price -- and sometimes more.

J.D. Power reports that the combination of strong retail volumes and higher prices mean that consumers are on track to spend $45.6 billion on new vehicles this month, the highest on record for the month of June. Consumer spending to purchase a new car or truck is expected to reach a record $149.7 billion for the second quarter, in part because dealers are getting more than the MSRP on more vehicles.

The Wall Street Journal cites the case of one consumer who offered a Florida Kia dealer $3,000 over the MSRP for a Kia Telluride. The offer was rejected because the dealer wanted $10,000 over the sticker price.

Automotive experts say that situation is more common in the case of popular, in-demand vehicles. They say consumers would be better off waiting if they have their heart set on one of these models, or settle for a less-popular vehicle.

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