Car prices are governed by supply and demand. Many dealerships entered 2024 drastically oversupplied. That’s still true, but February sales numbers show they’re managing to sell down the backlog of inventory. March is still a seller’s market, but conditions are slightly less severe for the negotiator on the other side of the table.
Most car dealers try to adhere to an old industry guideline that tells them to keep about 60 selling days’ worth of cars in stock. Veteran salespeople say that’s the level at which they probably have the combination of colors and features you’re looking for on hand. Less, and they risk you leaving for a rival dealership with a better selection.
Related: Is Now The Time To Buy, Sell, Or Trade In A Car?
However, too much inventory is also a problem. Dealers rarely own the cars on their lots. They borrow money to buy them from the factory and make payments on them. The longer vehicles sit unsold, the more they cost.
An oversupply is a problem. Dealers handle it by discounting cars.
Dealers nationwide ended January with an average of 80 days’ worth of cars on hand. They ended February with 76.
Related: Car Dealers Expect Lower Profits Amid Higher Inventory
According to Kelley Blue Book parent company Cox Automotive, dealers nationwide opened in March with 2.74 million new vehicles on hand. That is 942,000 units – or 52% – more than a year ago.
Ram, Chrysler, Jeep, and Dodge – all owned by Stellantis – ended the month with more than double the industry’s average supply.
Related: Average New Car Price Dropping Slowly, Steadily
Not every dealership is in that boat. Toyota, Honda, Lexus, and Land Rover are all understocked by traditional standards. Those dealerships can safely charge higher prices, confident that if you don’t buy their car, another buyer willing to pay close to the manufacturer’s suggested retail price (MSRP) will arrive.
However, other dealers are forced to discount cars to sell them. The final sale price of the average new car has been dropping steadily throughout 2024. Incentives – those discounts automakers and dealers advertise to win your business – are rising.
In February, incentives made up 5.9% of the average deal – up from 5.7% in January and 3.1% one year ago.
Room for growth remains, however. Discounts routinely made up 10% of the average sale before the COVID-19 pandemic reset expectations in the car market.
