Where Did Car Inventories Go?

Jul 12, 2022 | Ask "Z" Economist

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Summary: Auto inventories are a thing of the past as car manufacturers shift to online ordering models that largely cut out the dealers. One advantage of eliminating inventory is that there is no need to offer discounts when demand slows. Also, manufacturers keep more of the profits with the dealers playing less of a role as intermediaries. In any case, the auto industry is currently not doing so well with just 13.5MM annual unit sales as of June 2022 down from a high of 22MM in October 2021. While GM expects unit growth of +25% to +30% this year as the supply chain recovers, it also expects $5B in commodity inflation which means flat EBIT this year in the range of $13B – $15B. Further, GM is pushing towards adopting EVs (400,000 by the end of 2023, 1MM in 2025 & 40% – 50% of total production by 2030) which are more expensive but less profitable than traditional gas-powered vehicles. In the end, the auto industry transformation will be difficult on cash-strapped consumers, car dealers, and maybe net neutral at best for the manufacturers. 

Domestic Auto Inventories Graph

Vehicle Sales Graph

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