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Small and mid-sized dealers hope car prices come down as sales decrease

cars

Gaddy said they're still selling vehicles, and the key has been to have price variety to meet people's needs. (Bente Bouthier, WTIU/WFIU News)

Car prices reached all-time highs this summer. According to a report from automotive researchers, the average price of a new car passed $45,000 in June.

Higher prices may sound like a good thing for dealers, and analysts say it's still a sellers' market. But smaller dealers are having to compete for orders right now, and say higher prices can drive customers on a budget away.

The ongoing issue is inventory. Before the pandemic, dealers across the US typically had 3 and a half million cars in their lots. That fell to 2.7 million at the start of the pandemic and hasn’t recovered. 

Tom Gaddy, the sales manager at Paul-Richard GM in Peru said before the pandemic, they’d typically have 60 new vehicles on the lot. Right now, they have three.

Gaddy
Tom Gaddy, the sales manager at Paul-Richard GM

The smaller inventory changes the way people shop.

"More and more people are taking the time instead of having to have an immediate gratification of going and grabbing a vehicle off the lot and taking it home today," he said. "They're coming in, they're ordering exactly what they want.”

His store does have more than 80 new cars for sale online.

He said that means most new cars that hit the lot are already bought.

Supply chain issues and labor are affecting inventory on top of other issues.

“We've got vehicles that have been built, and sitting and waiting at a lot somewhere," Gaddy said. "They're sitting and waiting for two, three, four months and just they can't get transportation here.” 

His dealership has about the same amount of used car inventory right now as before the pandemic. Used car prices also saw a sharp uptick, hitting highs this summer of more than $26,000.

Because they're a dealership in a smaller community, Gaddy said they're reluctant to price things too high, and added trying to keep costs reasonable brings in more business from out of town.

“We know what this is all over, we're going to have to count on our friends and neighbors and people that we had sold to before. And we don't want to be known as somebody that took advantage of the situation.” 

Car prices were increasing back in 2019, but the sharpest jumps were in 2021 and 2022.   

Some consumers are discouraged from buying, as researchers reported vehicle sales dropped more than 19 percent compared the first half of last year.

The prices and uncertain inventory are an issue for Jeremy Haesley, the finance manager for a dealership in Spencer. He said they have seen a drop in buyers.

“We’re a relatively small country store. We don't sell hundreds of new cars like the big city stores do."

He says their vehicle orders aren’t prioritized, so they’ve adjusted to selling almost exclusively used cars.

"It hurts [large dealers], but probably not as much as it hurts us because we're used to having ten to 15 to 20 cars on the lot. And we have between two and five.”

cars
Haesley said his dealership is caught in a bind because they need inventory, but cheaper cars are some of the hardest to get orders for right now. And they don't want to put orders on vehicles that people can't afford.

Prices are projected to drop, especially in the used market. 

And Andrew Butters, an economics professor in the Kelley School of Business says we’re already starting to see that, as the inflation rate lowers.

"Now I want to emphasize as that the inflation rate coming down for new and used vehicles, it still leaves it at a very high rate of price increases," Butters said.

Price growth from July 2021 to July 2022 was 12 percent, a drop from 28 percent growth in in April 2021 and 2022.

Butters said we’re seeing the ripple effects of slowing the economy down for an extended period. 

“The economy while very robust and strong does have its own frictions embedded in it," Butters said. "What do I mean by that? Just the physical activity of having people stop working at their establishment and trying to return, I'd contend to be a costly endeavor.”

Gaddy and Haesley both hope for  some return to normal eventually. 

“All we're trying to do is get the best inventory at the best prices at the best times," Gaddy said. "And day-by-day, we’re working within this temporary situation."

Butters said prices will go down, but given the wide variety of economic factors affected by the pandemic, a complete return to normal isn’t realistic.

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