New-car shoppers are finding record high prices, empty lots
You might want to pause and take a deep breath before charging out to buy that new car you've been thinking about, particularly if that car is a fuel sipper.
According to industry sales watchdog Truecar.com, March transaction prices -- what new cars and trucks actually sold for -- were the highest in history.
The average cost of a new vehicle reached $30,748, up $1,977 or 6.9% from March 2011 and $143 or 0.5% from February 2012.
Strong sales in the first three months caught most automakers off guard. Demand nearly overpowered supply.
Fewer than 13 million cars and light trucks (pickups, vans and sport utility vehicles) were sold in 2011, with early predictions for 2012 sales hovering around 14 million.
January and February sales put the industry on pace to sell 15 million vehicles in 2012.
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With production levels set to meet demand for 14 million, the surprisingly strong January and February sales drained inventories.
According to our source at the National Automobile Dealers Association (NADA), automakers ideally have a 60-day supply of cars in reserve. In March, the supply was down to 48 days.
Simple supply-and-demand rules of economics tell us that prices are higher when supplies are lower.
If a car dealer only has one or two of a particular model that he usually sells three of each month, he or she will be less likely to dicker on the price.
Moreover, manufacturers don't put incentives like cash rebates and discounted financing on models in short supply.
Models in shortest supply like subcompact cars (35 days), as well as compact cars, SUVs and crossovers (45 days), will probably remain in short supply for the next couple of months, NADA told us, as will just about any vehicle powered by a four-cylinder engine.
As some industry analysts revise their 2012 sales projections to 14.5 million units or more, car manufacturers are scrambling to increase production.
We think there are reasons sales predictions of 15 million may be overly optimistic, setting the stage for overproduction and bulging inventories toward the end of the year.
Such an increase in supply would spur more manufacturer incentives while motivating dealers to strike better bargains.
Agreeing with our wait-and-see mind-set, NADA is cautious about overly optimistic sales projections.
Although NADA believes it is possible 2012 sales will be better than anticipated, they say it may be May or June before we know if the strong year-over-year sales in January, February and March indicate a stronger sales year or if the much milder than normal winter simply brought out spring and summer buyers early.
Another factor that might dampen sales is any rise in the record low auto loan rates we’ve enjoyed this year. A jump in interest rates could slow sales and inflate inventories, NADA told us.
Gasoline prices could also have an impact. Some energy analysts think fuel costs are close to peaking and may even drop during the summer.
If that's the case, NADA believes that will reduce some of the pressure on tight supplies of more fuel-efficient cars, which would also soften retail prices.
The bottom line is that anyone in the market for a new, smaller vehicle is facing tight supplies and dealers with less wiggle room when negotiating.
We think car buyers will pay less if they wait four or five months until supplies increase, and they will.
The situation is a little different for large-car and SUV shoppers: Inventories of those vehicles are more reasonable, with a 70-day supply on dealer lots. That means there are bargains to be had.