- Instead of offering the steep discounts to clear out older inventory, many automakers are having a hard time resupplying dealer lots with enough inventory.
- Edmunds estimates the average discount on a new vehicle in October was $2,046, about 23% lower than last year.
- That trend is expected to continue in November as dealers are reporting record profits on new vehicles due to tighter inventory levels.
Instead of offering the steep discounts to clear out older inventory, many automakers are having a hard time resupplying dealer lots with enough inventory after shutting down factories earlier the year to try to curb the outbreak this spring. That's left a backlog of pent up demand, especially for hot-selling SUVs and pickup trucks.
"In terms of deals, there's not pressure on automakers to clear inventory," Jessica Caldwell, executive director of insights for auto research firm Edmunds, told CNBC. "During the holidays, when they usually focus on model-year sell-down, we're not in that position because a lot of that has already been done."
Edmunds estimates the average discount on a new vehicle in October was $2,046, about 23% lower than last year. That trend is expected to continue in November as dealers report record profits on new vehicles due to tighter inventory levels. It's a simple case of supply and demand, Caldwell said.
When the coronavirus pandemic caused the U.S. economy to shutter at the end of the first quarter, automakers offered discounts and lucrative 0% financing offers for 84 months. It was an attempt to salvage double-digit sales losses after states imposed shelter-in-place orders that closed dealerships and crippled sales.
But consumer demand remained relatively healthy following significant declines in late-March or early-April during the depths of the first wave of Covid-19. That led to lower inventory levels that automakers such as General Motors are still attempting to replenish.
"If you're comparing deals for this year versus last year, it probably won't be as great," Caldwell said, adding Edmunds still expects to see healthy retail sales over the holiday weekend thanks to demand from higher-earning consumers looking to direct their spending toward a new vehicle after months in quarantine.
Cox Automotive says there are 650,000 fewer 2020 model-year vehicles than what was expected prior to the pandemic. That has led to a roughly $800 decline in discounts per vehicle from March, according to Brian Finkelmeyer, Cox senior director of new car solutions.
"Due to the inventory shortage in the industry, there's just going to be less available units with the big incentives," Finkelmeyer said, adding the number of discount programs are down 15% from a year ago.
That's not to say there won't be any deals on new vehicles. Passenger car sales have not been as robust as SUVs and pickups, which means customers seeking a sedan or even a crossover may still be in luck.
"There's always going to be an apple for the right eye, even this year. But it's not going to be quite as widespread as it has," said Matt Jones, TrueCar's director of industry education. "With Black Friday, it's often a pretty heavy sales day or week, but the focus is on outgoing models," which isn't in need.
Certain dealers also may have better deals as a way to hit sales goals, according to Jones. If consumers are planning to purchase a new car during the Black Friday weekend, he said to start researching as soon as possible. That includes finding and comparing vehicles online as well as scheduling test drives before Black Friday.
Jones also suggested being patient with the sales process because many dealerships are running with slimmer staff than usual due to the pandemic.
"This season is going to look different, as everything else is looking different this year," he said. "The process may take a little bit longer."