- But if you turn around and you look,
everything you see is new.
That's 10 rows each with about 15 cars
It's probably 150, 175 cars.
- [Host] It's what you'd expect to see
at a car dealership like Adam Lee's.
But let's rewind eight months.
- Look at this, I have not walked out here in a while.
This is, it's a lot of lot.
- Last year, new car sales fell
to their lowest level in over a decade
as shoppers saw more asphalt than cars on dealer lots.
Now, fast forward to today, dealers
like Adam Lee finally have more cars to sell
but rising interest rates are making those cars
harder to afford.
So the question is, will more inventory equal more sales
or will shoppers hold out for better prices?
Let's step back onto Lee's Lot to see what's going on
with the car market right now and if 2023 will be a boom
or bust year for the industry?
Here at Lee's Dodge Chrysler Jeep Dealership
shoppers have options.
- We have a great selection of everything and it's unusual.
I mean, just we haven't had a good selection
of anything for three years.
- [Host] JD Power Reports inventory at dealerships climbed
over 1 million cars to start the year.
It was around 800,000 last summer
but hovered around 3 million, pre-COVID.
- Customers would like to pull into a dealership
and have some choice, whether it's color or equipment.
I think they feel that they're not being forced
into buying something that maybe isn't quite perfect.
- [Host] But visiting Lee's Toyota Lot you wouldn't know
inventory is up.
- We have about 10 or 12 new cars on the lot, however,
all but probably six of 'em are sold.
- [Host] This imbalance between Lee's two dealerships
doesn't surprise JD Powers, Tyson Jonney.
- My word of 2023 is asymmetry.
We will expect production to come back
but it's gonna be asymmetric.
Some automakers will come back sooner
across the portfolio and even some models
within an automaker's portfolio won't return
at the same time.
- [Host] Take a look at supply by brand in January.
Cox Automotive shows Jeep a brand Lee had a lot of
with 125 days of supply.
Well, Toyota had less than 30 days.
- It would be nice to see a few more new cars sitting here.
People would like to, we're selling cars
to people that are waiting six months
and they've never even driven the car.
So people like to at least try it out.
- [Host] Still, like other dealers, Lee is quick
to say he doesn't want his pre-pandemic inventory back
and for now it seems neither do the automakers.
- We're closely monitoring the dynamic macro-environment
as well as customer demand to make sure we're appropriately
matching supply with demand.
- [Host] A big reason for that pricing.
There's a strong correlation between vehicle pricing
and inventory.
Roughly speaking, the more cars on the lot,
the more the dealer might be forced to consider discounts
or a manufacturer might offer incentives to move vehicles.
- It's not great for us and it's not ideal for the consumer,
if you buy a car today
and then two months from now you see that car advertised
for $6,000 less than you just paid
it's better if maybe there was a little moderation,
start with a reasonable price and just stick to that.
- [Host] But even a quick look in car windows will tell you
many vehicle prices aren't exactly reasonable right now.
- This is your random average, inexpensive Jeep.
It's not so bad.
$39,000, it's still a lot, but the trucks
these trucks are 60, $70,000.
So it's a challenge in the industry as a whole.
- [Host] The average cost of a new vehicle
was nearly $47,000 last month,
the second highest month on record after December.
But Joni says those high transaction prices
aren't here to stay.
Incentives are near record lows now, but JD Power projects
they could hit 8% by year's end.
- Nowadays what we can see is a return to incentives
advertising in the marketing.
So if you're looking for a full size pickup and you see one
on TV, a commercial that last five seconds
you're gonna start to see a deal.
- [Narrator] 2.99% financing for five years
on all 2022 Silverado 1500 pickups.
- [Host] But for many buyers,
it's the monthly payment they look at most
and rapidly rising interest rates
have made those payments more expensive.
- Just pick a vehicle here.
Any one of these, the payments gonna go up,
$80 a month with a five point rate increase.
So it hurts the consumer and they get nothing for it.
- [Host] Last year a lack of cars kept interested buyers
out of the market.
Now the worry is higher rates
or even a possible recession will dampen demand.
- When we're bringing on more production
and starting to return to normalcy, we really concerned
that economic factors may just knock the industry out
at the knees here
and consumers will stay out of the market.
- [Host] But after years of empty dealerships
there's a lot of pent up demand.
JD Power estimated two and a half million shoppers
are still looking to buy a car.
- This 2.5 million is mission critical to the auto industry
in 2023 for helping it achieve the plan
which really is to see sales increase
by about a million units this year from last year.
- [Host] Vehicle sales are expected to hit as many
as 15 million for the year more than last year
though still below pre-pandemic levels.
But to hit that number, demand has to hold.
And some dealers see warning signs.
- If they keep raising rates
and the manufacturers don't respond,
sales are gonna decline dramatically because people
they just, they can't spend six, seven, $800 a month
for a new SUV or a truck.
- [Host] But Domini says 2023 could actually be kind of
a sweet spot year
for the industry where buyers have more choice
but not so much selection
that the heavy discounting returns.
- We had decades operating at over 3 million vehicles
in inventory and we've had a year operating under a million.
We have never operated
at this quote sweet spot where we want to get to.
So if we get there, it will be a new environment.
- [Host] Achieving this requires automakers to continue
to produce less
than they had been something Ford has said it would do.
- We are not gonna go back
to the high inventories that we had in the past.
- The challenge is that,
there are at least 30 brands in the auto industry.
So the ability to to have discipline relies
on the other 29 competitors also maintaining a form
of discipline.
- [Host] And it will also mean dealers
like Lee will have to continue to live
with at least some empty lot.
- We're still seeing empty lot.
It's fine.
It's a good place to push snow
and we don't need anymore new cars right now.
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