The average transaction price for new vehicles hits a record $45,844 in June as consumers continue to pay no matter what amid inventory shortages and record gross profits per unit at dealers

And that despite the rise in interest rates for car loans.

By Wolf Richter for WOLF STREET.

The average transaction price (ATP) of new vehicles sold by dealers to retail customers hit a new stunning record high of $45,844 in June, up 14.5% year-on-year and beating the previous record set in May, according to estimates of JD Power, though the pace of new-vehicle deliveries to retail customers in June is expected to have declined 18% year over year, while many dealers ran short or ran out of models to sell in volume as automakers continue to grapple with semiconductor shortages and production outages trigger.

With overall inventories near historic lows and little improved from last year’s desperate levels, prices continued to rise, driven by historically low stimulus from automakers and additional stickers from dealers, but also by automakers’ prioritization of the most expensive trim levels and models, and so the ATP jumped to a new record.

Since June 2019, ATP is up 36%, or over ten grand! The chart shows ATPs for December and June of each year. Note the pre-pandemic seasonality, with ATP peaking in December but declining from there every year through June. But in June 2020, the ATP was at the December level for the first time. From then on, ATP rose regardless of seasonality, including this June. The green line connects the December:

The inventory nightmare.

June started with new vehicle inventories at desperately low levels as automakers continued to struggle with semiconductor shortages that will now stretch into 2023. Months ago, many automakers stopped taking orders for certain models for the 2022 model year, where the waiting lists were so huge that they can’t be built this year due to supply shortages. For example, Ford was no longer taking orders and reservations for the 2022 Maverick Baby truck (hybrid), F-150 Lightning (EV), and Mustang Mach-E (EV).

Thus, June began with 1.13 million new vehicles in inventory on dealer lots and in transit, down 70% or 2.68 million vehicles from early June 2019, according to separate reporting from Cox Automotive based on its dealertrack data. In 2019 as a whole, the stock of new vehicles averaged 3.66 million vehicles, with many models simply being out of stock and not even available to order. An additional inventory problem surfaced a few months ago: Customers, plagued by rising gas prices, began switching to more fuel-efficient cars and compact SUVs that nobody was prepared for, and dealerships were running out.

So record the gross profits per vehicle at the dealers.

The combination of enough demand that cannot be built up due to semiconductor shortages and these historically low inventories, leading to record high ATPs, allowed dealers to generate record gross profits per vehicle.

Total gross profit per vehicle delivered — which includes gross profit on the vehicle and profit from finance and insurance (F&I) sales — rose to a record $5,123, according to JD, up $1,174 from already sky-high levels from June 2021 corresponds to performance estimates. That gross profit per vehicle at the dealerships is over 2.5 times from what it was in normal times in June 2019.

At the per-vehicle level, the amounts of money being made by dealers are simply astounding as consumers pay no matter what, including fat add-on stickers. This reflects the inflationary mindset, and dealers and automakers are adjusting prices to take advantage. Consumers might as well go on a buyers’ strike and refuse to buy or order at those ridiculous prices, which would end these price spikes, but they haven’t done that yet.

Those massive gross profits per vehicle allowed all dealerships combined to earn a combined $4.9 billion across their sales departments, up 10% from June last year and the fourth-biggest gain for any month, despite the slump in volume.

Automakers cut incentives to record lows, lease incentives died.

The average amount automakers spent on incentives, either paid to dealers or reimbursed to retail customers, fell 59% from already low levels a year ago to an average of just $930 per vehicle, below $1,000 for the second straight month. dollars, according to estimates by JD Power. These include lease incentives, and these have been eliminated entirely.

Incentive spend as a percentage of MSRP fell to a record low of about 2% of MSRP in June. For comparison, in 2019, incentive spend was in the 10% range of RRP.

Incentive spending is how automakers adjust prices as MSRPs are set at the beginning of the model year and are not changed during the model year.

This massive reduction in incentive spending translates into huge gross profits per vehicle for automakers.

affordability? Forget it.

The average interest rate on new car loans rose to over 5% in June, according to estimates by JD Power. And despite the record-high trade-in value due to the ridiculous increase in used car prices lowering the amount to be financed, the average monthly payment rose 12.8% from June last year.

But right now, consumers who can afford it are paying no matter what to get a new vehicle, and many of them are ordering it now, and they’re paying extra stickers, they’re paying higher interest rates, and demand still exceeds supply .

Most consumers might as well drive what they already have for another year, two, or five, making new vehicles, as opposed to groceries, a discretionary purchase. And consumers may, but have not, reacted to these prices and interest rates, showing that the inflationary mindset is rampant.

Eventually, future Fed rate hikes could result in auto lending rates so high that they are driving demand below supply levels, allowing inventories to build, prices to calm down, and inflationary pressures to ease – which is not yet the case.

It remains difficult to see what actual demand would be under these conditions if supply were to return to normal pre-pandemic levels. And all of this shows that the inflationary pressure on new vehicles is not yet abating because enough consumers are still playing along.

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