Supplies Tight for Costly Vehicles; Econoboxes Linger on Lots

Automakers and their dealers are in for a solid 2021, Cox Automotive economists predict during a quarterly report on auto sales.

“It’s going to be a great year for auto dealers,” says Jonathan Smoke, the company’s chief economist, citing not only brisk vehicle sales but also more service work.

Regarding the latter, many vehicle owners delayed routinely servicing their vehicles in 2020 because of COVID fears. This year, more people will “catch up on their vehicle maintenance” as the virus becomes less threatening because of vaccination programs, he says.

The U.S. auto industry sold 14.5 million new vehicles last year compared with 17 million the year before. Although sales picked up in late 2020, COVID did a number on March and April sales, which were utterly dismal.

“Almost everyone is selling better than one year ago,” says Charlie Chesbrough, Cox Automotive’s senior economist.

As this year’s spring selling season hits a brisk pace, “tracking data reveals robust retail sales, which should look more like 2019’s path than last year’s,” he says, citing, among other contributing factors, the effect of a new federal government economic stimulus plan.

Smoke (pictured, below left) and Chesbrough predict U.S. dealers will deliver 16.1 million new vehicles this year. It would likely be more were it not for constrained supplies, they add. 

“Sales could be constrained if buyers can’t find what they want,” Chesbrough says, expecting supply issues will “squeeze sales.” Tight supply is “normal for now.”

Smoke, who predicts inventories will fatten up next year, adds: “If we had more supply this year, we’d shatter records. This year’s stimulus program is three times larger than 2020’s.”

The inventory issue is a tale of two markets.

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For example, the days’ supply is more than 100 for subcompact cars priced at about $18,000 and subcompact utility vehicles costing about $24,000.

However, the days’ supply is 40 for luxury utility vehicles priced at $95,000 and 45 days for fullsize utilities costing $69,000, according to Cox.

“Pickups and luxury CUVs are in tight supply, while cars are not,” Chesbrough says, noting the average vehicle transaction price is now about $40,000. “There is abundant supply for lower-price vehicles.”

Adds Smoke, “I wouldn’t be surprised to see continued pressure on vehicles with affordable price points.” He expects automakers to make fewer of them because of their low demand.

Why are sales strong for expensive vehicles while inexpensive ones linger on dealer lots?

In part, because lower-income consumers who ordinarily buy such vehicles got hit hardest by COVID’s economic effects last year, putting many of them out of the automotive market, Chesbrough says.

In contrast, higher-income groups weathered the COVID economic storm better than lower wage earners, and consequently possess the wherewithal and desire to buy upmarket vehicles, he says.

“Manufacturers are focusing their profitability on lower-demand but higher-profit vehicles,” Smoke says. “I don’t expect a reversal of that trend.”

Meanwhile, Cox Automotive analyst Kayla Reynolds offers automotive market predictions based on surveys and other sources. Among the forecasts:

Steve Finlay is a retired WardsAuto senior editor. He can be reached at [email protected].