For more than two years now, buying a new car has been relatively inexpensive.
And getting it now is almost a luxury because it is difficult to know when it will arrive. Delivery times given by car manufacturers vary, depending on parts availability.
Blame supply chain disruptions exacerbated by the covid-19 pandemic and the microchip shortage. These two problems combined have forced automakers to temporarily suspend production of several often popular models. They also reduced the inventory of new vehicles.
At the beginning of the year, the easing of the pandemic in some regions of the world gave hope that things would finally return to normal, but that was without counting the Russian invasion of Ukraine. Because of this unprovoked war, the prices of the raw materials needed to assemble certain cars, such as electric vehicles, skyrocketed.
The Prices Are Rising
And not surprisingly, new vehicle prices have skyrocketed as automakers pass these extra costs on to consumers who eat into their profits.
The average price of a new vehicle hit $46,259 in August, the highest on record, according to JD Power/LMC.
A recent iSeeCars analysis of 1.9 million new car listings found that the average new vehicle is 10% above MSRP, the manufacturer’s suggested retail price. In addition, some new vehicles are priced well above the 10% average, the study said.
The top 15 cars with the largest markups are between 1.8 and 2.4 times above the 10% average for all vehicles. So the price of the Jeep Wrangler is $8,433 higher than the price suggested by Stellantis (STLA) ; The Porsche Macan (VLKAF) it costs $14,221 more than the price offered by Porsche; The Ford Bronco is $8,697 more than Ford’s (F) suggested price and the Chevrolet Corvette is $14,697 more than General Motors’ (GM) recommended price.
“Dealers responded to market conditions by pricing cars above MSRP making higher profits on specific models to help offset lower sales volumes from constrained new car production,” said iSeeCars Executive Analyst Karl Brauer. “In today’s market, consumers are willing to pay well – above the sticker price for new cars because inventory is so scarce and because they know that new car pricing is not expected to improve until 2023 at the earliest.”
Unfortunately, this trend will continue. Ford has indeed reminded us that the supply chain is a huge headache and some suppliers continue to raise prices.
“The supply shortage will result from a higher-than-planned number of ‘vehicles on wheels’ built but still in Ford’s inventory awaiting required parts, at the end of the third quarter,” Ford said in a regulatory filing.
This means the Dearborn, Mich.-based automaker’s inventories will remain limited. For example, Ford has between 40,000 and 45,000 unfinished vehicles because some parts are missing. These cars were promised to dealers for a month at the latest. This will not be the case, according to Ford, who hopes to be able to complete them before the end of the year.
Ford is not an isolated case. In July, GM already warned that it was left with 95,000 unfinished vehicles due to the lack of components.
“Supply chain challenges may not be as prominent in the news as they were last spring, but it remains the single biggest problem facing manufacturers in every industry,” said James Sampson, partner at Black Horse Consulting & Advisory posted on LinkedIn.
All this means that, given the existing imbalance between demand and supply, the advantage in favor of demand will expand. Basically, car prices will continue to rise because there aren’t enough of them. Delivery times will continue to increase by several weeks or even months.
We must also not forget that financing the purchase of cars is more expensive because the Federal Reserve is in a cycle of raising its interest rates. Hence, car loan rates are much higher.
The average monthly percentage rate on a new car hit 6.14% in August, according to Edmunds.com, the highest rate since January.
So Ford’s bad news helped cement the idea that almost every car manufacturer is still limited by its supply chain. So the auto industry had a bad week on Wall Street.
Admittedly, the sector’s slide has also been fueled by fears about the health of the economy undermined by inflation at its highest level in 40 years, but the bad news delivered by Ford has completely rattled investors.
Ford shares have lost 16.4% over the past five trading sessions. GM fell 11.2% and Rivian (RIVN) fell 14.5%. Stellantis, formerly Fiat Chrysler, fell 10%, Lucid (LCDD) Fell 13.3%, and Tesla (TSLA) the market leader in electric vehicles, fell 9.2%.