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The number one reason auto manufacturers experienced a profit boom during Covid was due to supply chain disruptions that led to inventory declines, and cheap credit allowed consumers to panic buy anything on the dealer lot, driving prices through the roof. Now inventory lots are filling up.
According to data provider Cox Automotive, the weekly supply of vehicles at dealerships jumped to 740,000, or about 70% higher, in March than a year before.
More supply at dealers and a declining pool of creditworthy Americans means any remaining buyer has renewed bargaining power. This has led to increased vehicle discounts last month of 3.3%, up almost a percentage point compared with the same month the previous year, according to new estimates by J.D. Power.
Combinate the flood of new supplies with an affordability crisis as new-car loan rates have nearly doubled, and it's becoming evident that a discount wave is only just unfolding, leading to a future profit bust for automakers.
Meanwhile, Paul Jacobson, Chief Financial Officer at General Motors, knows turmoil is coming, as he told journalists in New York this week that high cash flows are needed to fund new ventures into electric vehicle programs. Jacobson said cost-cutting efforts are underway.
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