Automakers and dealers are worried about affordability as supply-chain woes keep inventory levels low and customers are hit with increased inflation, high gas prices and climbing interest rates.
Domestic and foreign automakers on Friday posted U.S. sales declines for the first three months of the year, with Cox Automotive Inc. forecasting the period could tally the worst first-quarter volumes in a decade. After more than a year of a global microchip shortage bit hard into inventory levels, the slide is leaving dealers empty-handed and demanding customers pay the sticker price or above.
The price hikes — likely to remain as automakers push to rebuild inventories — already are pushing some potential buyers out of the market. The average monthly payment for new vehicles purchased in the first quarter is expected to climb to $648 from $575 a year ago, according to analysts at Edmunds.com Inc., a car information website — the highest level that Edmunds has on record.
"There's a lot of demand," said Jessica Caldwell, Edmunds’ executive director of insights. "And when prices become more friendly, there's going to be all this differed demand that's going to come back into the market, so there's going to be a lot of demand for quite some time.
"Right now, people may have hit their max capacity on food prices and gas prices and car prices and rent prices. It seems to be a bit of a pressure cooker for consumers to be able to mitigate all of these increased costs."
General Motors Co. on Friday said its dealers sold 512,846 vehicles in the first quarter this year, down 20% from last year as slumping inventory continued to limit sales. Jeep and Ram maker Stellantis NV's sales dropped 14% year-over-year for the first quarter to 405,221 vehicles. Ford Motor Co. reported a 17% drop for the first quarter.
Kia America's sales in the first quarter dropped 5% year over year. Hyundai Motor America's sales declined 4%. American Honda Motor Co. posted a 23% decline for the quarter. And once again, Toyota Motor North America surpassed GM's U.S. sales with a total of 514,592 sales reported in the first quarter for a 14.7% year-over-year decline.
GM said it ended the first quarter with 273,760 vehicles in dealer inventory, including in-transit units. By comparison, there were 128,757 vehicles in inventory at the end of the third quarter in 2021, and 199,662 at the end of the fourth quarter. Despite some recovery in its vehicle stocks, the automaker expects its inventory will remain low this year due to the high demand.
"As far as new cars, the inventory is getting better, but it's still not the same," said Walt Tutak, general manager at Matthews-Hargreaves Chevrolet in Royal Oak, Michigan. "What we're doing is we're concentrating a little bit more on used cars, and we're buying a lot of these leases."
Near the end of the month, the dealership had 40 vehicles on the lot and half of those were sold, Tutak said: "The demand will always stay strong because the volume is down. People need cars. Their leases are expiring. Their used cars are getting older."
But production challenges persist: Stellantis on Friday said Mack Assembly Plant in Detroit, home of the two- and three-row Jeep Grand Cherokees, along with Belvidere Assembly Plant in Illinois, which makes the Jeep Cherokee crossover, will be down this week because of the shortage of microchips.
That comes after GM said two of its plants will idle this week. The Lansing Grand River plant in Michigan, where workers build the Cadillac CT4, CT5 and Chevrolet Camaro, is down as a result of an unspecified shortage not related to semiconductors. The Fort Wayne, Indiana, truck plant, home to the Chevrolet Silverado 1500 and the GMC Sierra 1500, is down the weeks of April 4 and April 11 because of the semiconductor shortage. Ford's Mustang plant in Flat Rock, Michigan, is also down this week because of the semiconductor shortage.
Higher gas prices make way for EVs
With the national average for a gallon of gas price hitting almost $4.22 on Friday, according to the American Automobile Association, demand for electric and hybrid vehicles shot up in recent weeks, said Michelle Krebs, executive analyst for Cox Automotive Inc.
"It's not just idle shopping; it's buying," said Krebs, noting inventory seems to be limiting sales. “For Toyota sales, their electrified sales are lower than last year, but the percentage of overall sales is higher. The Rav4 Hybrid is their top-selling. It’s just the low supply.”
When James Salter, 50, of Superior Township, Michigan, found himself in the market for a new vehicle, he knew he wanted a hybrid to reduce his gas costs. He had learned about the difficulties mechanics are having in getting parts when he went to get a new clutch for his 2016 Hyundai Elantra with a manual transmission. As an Uber and Lyft driver, he couldn't have his vehicle out of commission for weeks or months.
"Right now, if he got a Ford F-150 that needed the rear differential rebuilt, he couldn't do it until at least summertime," Salter said of the technician at the repair shop. "Because there weren't the proper parts available to do it. And that just petrified me."
He had a shortlist of vehicles he liked including the Ford Escape and the Hyundai Tucson, but he settled on the Toyota Venza XLE hybrid. After ordering it in mid-January for the manufacturer's suggested retail price of $36,425, his blue 2022 Venza arrived in late February.
"I was really intrigued by 40 miles a gallon in the city," Salter said. "And then I saw the styling of this car was like, 'Oh, this is pretty sharp, too.'"
He was sold once he tried it out. Driving a hybrid has helped to buffer him from the gas price increases following sanctions on oil-rich Russia for its invasion of Ukraine. He's paying the same amount of $125 a week on gas at $4 a gallon compared to the $3 it was earlier this year.
"I never dreamed that I would consider MSRP a good deal on a car," he said. "But in this climate, it is, and I'm happy with it."
Many automakers on Friday touted their EV sales amid steep increases in gas prices. Toyota said sales of its EVs represented 26% of total sales in the quarter. Honda set a new monthly record of 12,635 for its EVs with "strong" sales of the CR-V Hybrid and Accord Hybrid. Kia America said it sold 3,156 of the all-electric EV6 in March, making it the best month and quarter ever for Kia's electrified models.
GM sold 99 GMC Hummer EV trucks after launching the vehicle in December. It sold 358 Bolt EVs and EUVs, down 96% year-over-year, after the automaker halted production for months due to a fire-risk recall on its lithium-ion batteries that it has been replacing in customers' vehicles. Production of the Bolt is slated to restart at the Lake Orion plant on Monday.
In oil-producing Texas, gas prices of roughly $3.79 per gallon are lower than the national average, so there hasn’t been a noticeable shift in demand for certain vehicles, said Bob Tomes, president of Ford, Volkswagen and Subaru dealerships in McKinney, Texas, outside of Dallas.
Still, he’s got 490 customers who have reserved an all-electric F-150 Lightning pickup truck. But he’s getting “a grand slam total of six — that’s S-I-X” as a part of the first wave of deliveries, he said, noting he understands retailers on the east and west coasts are receiving more.
“That was a pretty severe disappointment,” said Tomes, noting he’s been looking at installing the needed charging infrastructure for EVs. “We’re beginning to see charging stations at theaters, charging stations at grocery stores, charging stations every which way you look here in the Dallas market.”
Ford has said it has to allocate a certain percentage of its EVs to states that have a zero-emission vehicle program to be in compliance. The automaker is moving to be able to produce 150,000 Lightning trucks per year by next year as demand exceeds capacity.
For Tomes' Ford site, he had 38 vehicles last week. Another 77 are being built now. But in pre-pandemic times he was up to 800 vehicles available on his lot. The VW and Subaru stores aren’t much better. Seeing double-digit billion-dollar investments in Texas for microchip fabrication gives him hope for relief, but those plants won’t be operating for another couple years.
His company is buying a dozen or so vehicles off the street each week for used inventory, and he’s incentivizing employees with $250 to $500 if they can bring in a customer to trade in a vehicle.
“The last two weeks it has improved,” Tomes said of his inventory. “It is going to reduce and maybe quite significantly reduce the hand-raisers to ‘I need a new vehicle now.’ We’re already seeing that in the first quarter.”
'An affordability problem'
Also seen in the first quarter is the shift to higher income brackets purchasing new vehicles. The average buyer's household now makes $124,000 compared to a median income closer to $65,000 in the country, Krebs said.
Stellantis NV CEO Carlos Tavares last month expressed how troubling those statistics are: “I am very concerned about the effect of affordability,” he said, adding it's “becoming much more of an issue as inflationary pressures escalate.”
Increasing gas prices and interest rates haven’t seemed to dissuade new buyers yet, said Jim Walen, owner of a Chrysler Dodge Jeep Ram and a Hyundai dealership in Seattle. But he thinks it could happen soon: Filling up a new Ram 1500 pickup truck recently to deliver to a customer cost $155.
“With rates going up, and car prices not coming down, there will be an affordability problem,” he said. “A $500 to $600 monthly payment is pretty normal.”
Across Walen's two dealerships, he has about 218 vehicles, new and used, compared to a more typical stock of 800 new cars alone. He recently got his hands on a Ram ProMaster commercial van and isn’t expecting to get any more this month — he had interest from 100 customers.
“How do I pick who gets the van?” said Walen, admitting he ended up selling the vehicle for $5,000 above MSRP. “It’s a rock and a hard place on the inventory.”
That’s because Stellantis considers customer satisfaction heavily in the allocation of vehicles, Walen notes. So when the customer fills out a survey on the purchase and calls it a price gouge, it risks inventory — and revenue — for dealers.
“They want people being happy with doing business with them," he said. "No complaints here. It’s just the way the market is.”
