Short Supplies, High Demand Mean Auto Shoppers Pay Through The Nose

Dealers say that inventory is low and customers are purchasing cars off the truck. Getty ImagesCharlie Chesbrough is a senior economist at Cox Automotive. He recently raised the U.S. sales forecast for 2021 reluctantly. This was because he believes that auto sales will slow down sooner or later due to high prices and low inventory. It hasn't happened yet.Chesbrough stated in a webinar sponsored by American International Automobile Dealers Association. In this insane environment, who would want to purchase?He said that consumers lack bargaining power. He said that consumers are not in a position where they have the power to negotiate price. This trend will continue into the future.Cox Automotive increased its 2021 U.S. car sales forecast to 16.5 Million new cars and trucks, an increase of 14.5 million for 2020. This was due to the pandemic. Cox Automotive's 2021 forecast was 15.7 millions in March.Chesbrough claims that auto sales have been so strong since then that it is mathematically impossible that 2021 would see such low sales with just six months remaining.The current environment for auto sales is crazy because demand is high even though transaction prices consumers actually pay after all incentives have been applied. A growing number of dealers are reporting sales that exceed sticker price. This is a rare occurrence, except for collector cars and sports cars.A separate forecast by J.D Power, LMC Automotive and LMC Automotive shows that the average vehicle price will reach $38,088 in the first half 2021. This is a 10.1% increase in price compared to the first half 2020 and a $4,699 increase (or 14.1%) compared to the first half 2019.Due to a shortage in computer chips and continued strong demand, inventories of new vehicles are unusually low.Auto industry uses days-supply to describe inventory. This is the time it takes to sell a certain number of vehicles at current sales rates. Chesbrough stated that the average days-supply was 35 days as of May 10. A 60-day supply was normal pre-pandemic.As the pace of the demand exceeds the pace production, this will continue to increase the tightening of the market, Chesbrough stated. This problem cannot be solved... there is so much interest.