Will Dealership Inventories Ever Normalize?

Tired of hearing about the impact of the COVID-19 Pandemic? Join the club; we’re still wondering when dealership inventories will normalize.

The idea of what normal will be in the automotive industry is going to change as automakers and dealers work to adapt to the lower levels on each lot at the time of purchase. That new normal level might be realized over the next several months, but that doesn’t mean we will see the same numbers offered that were present at dealerships prior to the pandemic and the chip shortage that has caused so many problems.

Every Industry Was Hit by the Pandemic

As strange as it may sound, some industries flourished during the pandemic while others were cut down at the knees. If any of your favorite restaurants have closed, the source of their troubles could likely be traced back to this event. There was no way to predict the impact of a global pandemic or to know that we would have one ravage the world during 2020. When COVID-19 was spreading fast, it seemed that a new decade was already going to be doomed, even though it had only just begun.

Although we digress a bit, getting back to talking about the various industries impacted by the pandemic, we know that the gaming industry was booming while the automotive, manufacturing, construction, and restaurant industries were all hit hard by the troubles of this virus brought with it. We’ve heard enough about the cost of lumber, the semiconductor shortage, and the various restaurants that couldn’t survive through one of the most trying times in history. There’s a good chance you’re still facing some of the effects of this pandemic and are truly tired of how it has impacted your life.

Higher Prices Per Vehicle Right Now

As it always does, when supply is less than the demand for products, the prices of those products increase dramatically. We see this happen with gas prices every summer and holiday season. Pay attention, and you’ll realize the times when fuel prices increase the most are when people are traveling. Right now, the same is true of vehicle prices. Before dealership inventories normalize, most dealers are going to make a lot more money per vehicle than they ever would have before the pandemic. You’ve heard about used cars going for extremely high prices all year, the same is true for some of the new models offered.

Online Sales Made a Huge Difference

Dealers were forced to figure out how to sell cars online during the worst days of the pandemic. Everything was done without any personal contact, which made it more challenging, but dealers figured it out and were able to sell their inventory during this time. The fact that dealers solved this part of the puzzle made it much easier for them to sell cars and keep things going during the pandemic, which was certainly one of the most difficult times in our history.

Inventories are Beginning to Normalize

Amidst all of the challenges faced by automakers; the chip shortage, the pandemic, manufacturing shutdowns, the number of cars offered at many of the locations around the country, dealers are going to be able to have the vehicles needed to sell to customers. The dealership inventories we’re seeing now are starting to grow to offer more days of inventory on each lot. This means the supply is growing and coming closer to meeting the demand we have for the vehicles we want to drive. Even with this news, there might be a new normal at the dealer you visit for your next new car.

Focus on Faster Deliveries

It’s still difficult to deliver vehicles to dealerships. You’ve seen the large trucks with several vehicles on them that pull up alongside a dealer only to fill half a dozen spots on the lot. If the car dealer has dozens of empty spots, it takes several of these trucks to fill all those spaces. Automakers are working on ways to not only produce cars faster but bring them to dealers much sooner than they have in the past. This could reduce the need for dealers to have a full lot of vehicles to offer customers.

Which Way Will You Go?

Another factor in the increase of dealership inventories is that some customers are simply putting off the purchase of a new or used vehicle. Many do not want to pay the higher prices required right now, and that means fewer customers through the doors of dealerships. For dealers, this is a bit of a ying-yang moment with fewer customers and the ability to build up inventory levels while charging higher prices for the new and used models at dealer locations. Are you going to be one of the customers putting off your car purchase?

Car buyers have been surveyed by KBB, and the findings tell an interesting story. During this survey, it was found that nearly half, 48 percent of drivers are postponing their new car purchase until the semiconductor shortage has been resolved. That group was also asked how long they intend to wait for purchase and the answer for more than 40 percent of them was they would wait seven months or more.

This has created a delicate situation that will eventually see more vehicles offered at prices that feel they are in line with the prices we saw prior to the COVID-19 pandemic.

What is Normal, Anyway?

There are more drivers on the road today than at any other time in history, which means we don’t actually know what normal is. Even with that said, we see many people have continued to work from home (which was forced by the pandemic) and are ordering food through delivery services right to their door. With ride-sharing programs and car-hailing apps for rides, there’s no certain formula for how many cars should be sold and how many drivers will continue to buy them. Without a true normal, car dealerships can focus on shoppers who engage with them and closure rates instead of dealership inventories in stock.