Supply constraints and record profits color the November sales forecast

Automakers appear to be on the cusp of an inventory surge that would replenish dealer lots and offer more choice to customers. However, November’s sales forecast won’t reflect those effects yet. J.D. Power and LMC Automotive are forecasting that November 2021 will experience a double-digit decrease compared to one year ago when adjusted for selling days.

Retail sales are expected to report in at well under one million units for the month – 933,700 units – representing 12.6% fewer deliveries than Nov 2020. Even accounting for an extra selling day this year, the decrease is still 8.8%.

Demand continues to outpace supply

The decline in sold units this month doesn’t appear to be influenced by economical drivers or pandemic-related uncertainty. Dealers are seeing a steady stream of high-intent purchasers coming through the showroom doors. But what dealers don’t have are the popular models in any meaningful numbers that customers are looking for. That’s particularly true for pickup trucks. In many cases, new vehicles are pre-sold or factory orders, and the vehicles arriving on carriers are already spoken for.

Thomas King is the president of data and analytics for J.D. Power. He says, “For November—as has been the case since August—new-vehicle sales are being constrained by available inventory. Retail inventory on dealer lots is expected to end below one million vehicles for a fourth consecutive month, with sales in each month being dictated by the number of vehicles delivered to dealerships rather than reflecting actual demand. The lack of vehicles in inventory this month is particularly significant as the typical Black Friday sales surge will be difficult to support. Nevertheless, strong underlying demand for new vehicles, coupled with rising pent-up demand due to the inventory shortage, is sustaining record transaction prices and profits for each unit sold.”

Inventory turning over at record pace

One marker that often plagued dealers who carry high levels of inventory in the past was the number of days on the lot. Rather than paying floorplan on dozens or hundreds of vehicles, the fast turnover has been another area dealers have benefitted. It’s expected to be a record low for November at under 20 days on average with more than half selling within 10 days.

King commented, “Retailers continue to sell a large proportion of vehicles almost as soon as they arrive in inventory. This November, a record of nearly 55% of vehicles will be sold within 10 days of arriving at a dealership, while the average number of days a new vehicle sits on a dealer lot before being sold is on pace to fall to 19 days, a record low and down from 48 days a year ago.”

Transaction prices stay at record high, profit climbs further

According to the J.D. Power/LMC Automotive forecast, the average selling price is expected to finish out at just north of $44,000. The average transaction price has sustained a record level above $40,000 for a half-year with no signs it’s going to slide back anytime soon.

“This scarce inventory is being met with powerful demand that continues to maintain prices—and profit per unit sold—at record levels,” says King. “Average transaction prices are expected to reach a November record of $44,043, a sixth consecutive month above $40,000, and 18.1% higher than November 2020 when prices hit $37,284.”

But the best news for dealerships is this: for the second month, dealers can expect to see per-unit profits exceed $5,000. November’s average profit per unit is forecasted to hit $5,164 when F&I is factored in. That’s approximately two and a half times more profit per vehicle sold than last year this time, and the highest on record.

Inventory is unquestionably still tight, and dealers need to be creative and flexible in how they fill their customers’ driveways with new vehicles. However, profitability is higher than ever for most dealers, and that’s a trend that many would like to ride for quite some time. Though chip shortages are expected to give way in the coming months, it could be a year or even two before inventory levels return and demand balances out with supply.

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