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Your next vehicle might cost more. Here's why

By Breana Noble, The Detroit News on

Published in Business News

LIVONIA, Mich. — When automakers resumed production of vehicles following the initial shutdown amid the novel coronavirus pandemic, they revved up generous incentives for buyers akin to those seen during previous downturns in anticipation of a major slowdown.

But just a few months later, average transaction prices are reaching record figures. That comes despite third-quarter unemployment averaging 8.8% and consumer sentiment falling to levels not seen since 2011 just after the Great Recession. Dealers say it's a challenge staying stocked as the plants seek to catch up on production following their two-month shut down this spring.

Short inventories have kept discounting in check, while government stimulus, low-interest rates and aversion to public transportation have helped boost demand. Preliminary third-quarter earnings reports from Tesla Inc., BMW AG, Mercedes-Benz maker Daimler AG and truckmaker Volvo Group are beating analyst expectations. Detroit's automakers begin reporting earnings Wednesday.

"I was concerned that they were going to run out with the manufacturing shutdown," said Mark Palo, 52, of Redford Township, this week after picking up his new F-150 truck ahead of his lease expiring next month at Bill Brown Ford in Livonia. He'll pay $25 extra on the new lease. "I reached out to them because I was nervous about inventory."

So is Matt Garchow, the dealership's general sales manager. He sold a couple of hundred trucks last month but has less than 400 on his lot: "It'll be a little bit of a struggle toward the end of the year. We'll run out of F-150s probably before the '21s get here," he predicted. "It puts a damper on finishing the year strong."

Ford Motor Co. dealers had just 63 days of supply at the end of September compared to 84 last year, according to Cox Automotive. And it's not just Ford: General Motor Co. retailers had 50 days of supply on hand, down from 81, and Fiat Chrysler Automobiles NV dealers had 55 days of vehicles, down from 71 last year.

 

"The industry's recovery from COVID was expected to take longer," said Sam Fiorani, vice president of global vehicle forecasting for AutoForecast Solutions. "Buyers have bounced back quicker, so that it's putting a strain on getting enough vehicles produced between keeping workers safe on one side and the demand on the other."

With supply struggling to keep up with demand, average transaction prices have continued to rise from last year's record-breaking figures. GM's prices on average in the third quarter were up 4.3% to $43,445; Ford's rose 8% to $45,599; and FCA's increased 5.6% to $42,895.

"You are safer in your car than doing many other things," said Ivan Drury, senior manager of insights for auto information website Edmunds.com Inc. "People are driving rather than flying. With the uptick trend in trucks and SUVs, you see people saying, 'We want to be outdoorsy.' It's the perfect timing, especially with low gas prices. It all came together in kind of a remarkable manner for autos."

While 22 million Americans filed for unemployment in March and April, the demographics of new-vehicle buyers may put the industry in a more comfortable position than other sectors of the economy, said Kristin Dziczek, vice president of industry, labor and economics for the Center for Automotive Research in Ann Arbor.

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