After nine consecutive months of declines which saw index values deteriorate over 72%, it appears that we may have finally reached a bottom for new vehicle inventory with the Vehicle Availability Index increasing by 1.1% in October (albeit down 71.1% compared to inventory levels last year).
What caused this nascent turnaround? A combination of reduced sales demand due to a lack of vehicles – not a decline in true consumer demand and increased production of vehicles at a relative level as the semiconductor shortage starts to mitigate.
With a limited number of chips available, OEMs are likely targeting higher margin vehicles which has helped the average new listing price continue to increase to $46,535 – up 23.9% YoY. Perhaps even more surprising for the budding inventory turnaround was that days-on-market dropped to 52 days, a decline of 32.4% YoY, meaning that consumer demand remained strong.
We almost went two for two on inventory increases in October, however, used fell agonizingly short with a decline of 0.02%. This decline is particularly impressive as used demand has strong seasonality which normally slows demand in the fourth quarter. This likely counter-seasonal increase in demand is shown in average listing price which accelerated again in October and increased 2.5% after several months of slower growth. Days-on-market remained relatively flat, coming in at under 62 days, an increase of 0.8% from September.
So, with a new inventory increase and used inventory barely declining, are we at an inflection point, and will we be back to normal soon? Unfortunately, the road to a new normal won’t be that straightforward, and it’s going to be a long journey with more surprises along the way.
For new inventory, while we’ll see some level of stability, we likely won’t see substantial gains in inventory as production remains limited and demand has been pulled down. So, as inventory comes back, we’ll see increased sales before we see significant increases in inventory. Additionally, OEMs and dealers might look to keep new inventory lower than they have historically done to lock in recent pricing gains, so we may be looking at a new normal for inventory when we exit this current crunch.
Used inventory, while based on seasonality, should be seeing some increases (the used index increased 5.5% MoM in October 2020). High levels of demand from buyers who would typically buy new will likely keep things muted for now, and historically high prices will subdue inventory even longer into 2022.
All in all, we expect that late 2022 is the earliest time we could arrive at our new normal of inventory supply.
To learn more about vehicle inventory trends, download the CarGurus Vehicle Availability Index & Insights October 2021.