By Greg Lai and Alex Hsiao, Co-Chief Investment Officers
Car Sales Moving Over to the Slow Lane…
A couple of weeks ago, we wrote about the undue influence that auto insurance has had on current inflation, but maybe that was the “cart before the horse.” The more frustrating new paradigm coming out of the pandemic was the huge increase in car prices and the multitude of factors that still factor into the soaring prices. A recent CNBC piece highlighted some insiders who believe that we’re “never going back to the old normal” regarding car prices. As noted in our auto-insurance piece, just the cost of car parts and the labor alone used to build those cars. We can see that car prices are at a new secular high. The chart below shows the dramatic increase in the average transaction price of a new car, even with the recent modest pullback.
Even so, car supplies are up as the most recent Cars Commerce May Industry Insights Report affirms about 2.32MM new vehicles in May on the Cars.com marketplace. The report highlighted that new car inventory rose 4% month over month and year over year, as did used car inventories. This is leading to 67 days’ supply versus a low of 49 days’ supply a year ago. Unfortunately, despite this growth in new car inventory, there does not appear to be any price relief on the road ahead. Pent-up demand for new cars remains high. If you are like me, then we ask ourselves, how about a used car? Much like new cars, there has been some easing in used car prices, but inventory is still low, keeping prices high.
If supply wasn’t enough of a problem, financing is another factor that has created friction in the auto-upgrade cycle. Worse, when it comes to used cars, the interest rates are double that of a new car purchase. This often leads to a used car being the same price after financing a new car. And lastly, that evil auto insurance expense skyrocketed, up over 20% in May. Trade-ins are no help like during the pandemic’s tail end as trade-in values are coming back down.
Interestingly, the data involved EVs, most notably Tesla, versus all others. Given Tesla’s stock price collapse, a Cars Commerce study found that Tesla wasn’t among the fastest-selling models. Audi and Toyota took the top spots in the new car space, and Rivian and Chevy Bold took the top three spots for fastest-selling used car, despite Tesla being the most searched used EV.
2024 may still not be the best time to buy a car, but the trends are looking better for buyers. That said, I’ll still be taking Uber and waiting for the right time to buy a used Porsche, “There is No Substitute.”
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