Show an ad over header. AMP

It's a great time to be a car dealer — but not so hot for buyers

Anyone looking to buy a car right now is likely to find fewer choices and higher prices — with very little room to negotiate.

The big picture: The pandemic has thrown off the natural balance between supply and demand for new and used cars, driving up vehicle prices and putting all the bargaining power into the hands of car dealers, who are enjoying fatter-than-normal profits.


What's happening: It's nothing like the Great Recession of 2008-2009, which forced General Motors and Chrysler into bankruptcy and left other global automakers on the ropes.

  • Back then, the banking and credit crisis caused sales to collapse suddenly, but manufacturers kept producing cars, albeit at lower levels.
  • This time, the pandemic shut down production for two months, but buyers came back to the market sooner than expected.
  • "This recession is unlike any that the auto industry has seen before," says Jonathan Smoke, chief economist at Cox Automotive.

Between the lines: An extraordinary set of circumstances has created the perfect seller's market:

  • In mid-March, every major auto manufacturer stopped production — for the first time since World War II.
  • That led to a shortage of vehicles on dealer lots, in particular pickup trucks and SUVs.
  • Used cars grew scarce too, as fewer people traded in vehicles or returned leases during the pandemic's early lockdowns. And many banks aren't collecting on bad auto loans, either, meaning that fewer vehicles than usual were repossessed.

But consumer demand proved resilient in the months after the initial crisis as dealers made it easier to shop online.

  • Federal stimulus checks, plus the extra $600 monthly unemployment benefits, helped grease the market (though both programs are over now).
  • Big incentives, including longer loans, helped put car payments within reach for many.
  • Shifts in attitudes toward public transportation during the pandemic also drove more people into the car market, many for the first time.

It's basic economics: When demand is high for something that's in short supply, prices go up.

  • The average transaction price on a new car is $38,414, up about $400 since January and $1,200 since last July, per Cox data.
  • The spike is even more pronounced on used-car lots, where list prices are up $900 this year alone, to an average $20,445.
  • At wholesale used-car auctions, dealers are fighting over scarce inventory, bidding up prices — which of course get passed on to consumers looking for a good, affordable, late-model used car.
  • On the flip side, you'll get more for your trade-in right now if you decide to upgrade.

The roller-coaster now has dealers feeling flush. After a brutal spring, many are now seeing record profits.

  • Gross profit on new vehicle sales in the most recent week of August was more than $1,100 per unit, up almost $800 vs. the same week last year, says Tyson Jominy, vice president of data and analytics at J.D. Power.
  • Gross profit on used vehicles is "easily" twice that, according to the research firm's used car specialist, Larry Dixon.
  • Yes, but: as noted, they're paying more to acquire used-car inventory, so their overall margins are a bit narrower.

What to watch: The rest of the year remains a big question mark, and the volume of auto sales will likely depend on the virus and the government's response, says Smoke, the Cox economist.

  • If the federal government does more to prop up the economy, including more stimulus money for consumers, he expects auto sales to keep rising. But if unemployment worsens, demand will fall.

Toyota sales chief Bob Carter, for one, is optimistic. "The industry is returning to health. The main issue right now is supplying the vehicles that customers want to buy — especially trucks and SUVs."

White House plots "full-court press" for $1.9 trillion relief plan

The Biden White House is deploying top officials to get a wide ideological spectrum of lawmakers, governors and mayors on board with the president’s $1.9 trillion COVID relief proposal, according to people familiar with the matter.

Why it matters: The broad, choreographed effort shows just how crucially Biden views the stimulus to the nation's recovery and his own political success.

Keep reading... Show less

Scoop: Sudan wants to seal Israel normalization deal at White House

Three months after Sudan agreed to normalize relations with Israel, it still hasn't signed an agreement to formally do so. Israeli officials tell me one reason has now emerged: Sudan wants to sign the deal at the White House.

Driving the news: Israel sent Sudan a draft agreement for establishing diplomatic relations several weeks ago, but the Sudanese didn’t reply, the officials say. On Tuesday, Israeli Minister of Intelligence Eli Cohen raised that issue in Khartoum during the first-ever visit of an Israeli minister to Sudan.

Keep reading... Show less

Netanyahu doesn't want a fight with Biden over Iran — yet

Israeli Prime Minister Benjamin Netanyahu, hoping to avoid an immediate clash with President Biden over Iran, will give dialogue a chance, Israeli officials say.

Why it matters: Biden intends to try to resume the 2015 nuclear deal, which Netanyahu vehemently opposes. The two are on a collision course, and memories are fresh of the crisis in U.S.-Israel relations when Netanyahu was publicly campaigning against Barack Obama's attempts to reach a deal — including in a speech to Congress.

Keep reading... Show less

The Doomsday Clock is kept unchanged at 100 seconds to midnight

In its annual update on Wednesday morning, scientists announced the Doomsday Clock would be kept at 100 seconds to midnight.

Why it matters: The decision to keep the clock hands steady — tied for the closest it has ever been to midnight in the clock's 74-year history — reflects a picture of progress on climate change and politics undercut by growing threats from infectious disease and disruptive technologies.

Keep reading... Show less

Biden's climate orders to include halt on new oil-and-gas leases on public lands

President Biden will signnew executive actions today that provide the clearest signs yet of his climate plans — and will begin an intense battle with the oil industry.

Driving the news: One move will freeze issuance of new oil-and-gas leases on public lands and waters "to the extent possible," per a White House summary.

Keep reading... Show less

Insights

mail-copy

Get Goodhumans in your inbox

Most Read

More Stories