New Car Supply Is Finally Improving

Once we entered the COVID-19 era, the automotive market hasn’t been good to buyers. Every automaker has struggled with supply issues, whether it’s a certain part or just an inability to produce a model. As a result, buying a new car is still a challenging task. With so few inventory pieces, dealers mark up vehicles, making them out of reach for many. However, we’re finally starting to take a step in the right direction. Not that it’s time to rush out and buy a new car, but the new car supply is finally improving a little.

New car supply and demand

Garber Buick Dealership in Saginaw, MI
Garber Buick Dealership Saginaw, MI | Buick

According to KBB, last month, the average new car cost $48,301. Not only is it a new record high, but it’s also the fifth straight month of an increase and the fifth consecutive month of a new record high. Furthermore, supply and demand are the biggest detriments to the cost of vehicles. Automakers have been unable to produce vehicles at their normal rates due to missing parts or other supply chain issues for quite a while now.

However, that’s not the only thing causing increased prices for buyers. KBB says interest rates continue to rise, and loan standards continue to grow more strict. In addition, lenders want buyers to give higher down payments and higher monthly payments. On average, buyers took home a $743 per month car payment for August. In short, prices for everything is higher, but people still want their cars, which automakers can’t make quickly enough.

New car supply growth

A Kia dealership, maker of the 2023 Kia Sportage.
Kia dealership | Getty Images

Luckily, we’re finally seeing some relief regarding new car production. According to KBB, at the end of August, America’s new car dealers had 1.2 million new cars in stock. Although that might not sound that high, the last time car inventory reached that number was in June of 2021. New car dealer supply is roughly one-third higher than it was this time last year.

However, don’t take this as a reason to go buy your next car right now. If you’re waiting for the market to fix itself before you buy, keep waiting a while longer. While it is a step in the right direction, KBB says it isn’t enough to bring prices down yet. “Available supply is at its highest level in our data since June 2021. Still, it is far below historical levels. Production just cannot catch up to demand yet,” Charlie Chesbrough, Cox Automotive senior economist, said.

There is no magic number that the supply of new cars should reach before prices begin to fall. However, the inventory numbers American dealers possessed pre-pandemic are likely where it needs to be. KBB says in August of 2020, dealers had 2.48 million cars for sale. Alternatively, August 2019 was the last pre-pandemic year, and dealers had 3.45 million vehicles nationwide.

Global chip shortage improvements

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One of the most significant supply issues for automakers is the semiconductor chips that started it all. Without them, many brands can’t produce essential features in specific models. However, KBB’s analysts say chip supply is improving in other industries but remains low in the automotive world. Automakers need low-power chips for simple things, like changing the temperature inside a vehicle. Unfortunately, those are a low priority for chip-makers, as high-powered, high-capacity chips are bigger money-makers.

In conclusion, do your research before buying from a local dealer. While overall many dealers are struggling, some automakers and some locations are much better than others. Fortunately, the production seems to be slowly ramping up, but it isn’t enough yet. Eventually, we’d like to see the market return to its pre-pandemic form, effectively dropping overpriced vehicles back to their MSRP. For now, we’d recommend waiting out the supply issues until the new car shortage is in a better position.

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