3 hard-hitting auto market realities from the dealership floor

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The car market is shaped by an enormous amount of variables. From elevated new car prices and auto loan rates to tight used car supply, technician shortages, high insurance premiums, floorplan costs (I could go on…) it can be difficult to understand what’s really happening at the dealership level. 

So — I turned to my subscribers on social media for a monthly “temperature check” on their markets and got 300+ anecdotes across my platforms from dealers nationwide.

The responses show a sharp contrast between holiday surges and atypical slowdowns. Some dealerships are riding a wave of strong sales, breaking records, and finding stability on both the new and used side. But others are weighed down by sluggish starts, leftover challenges from November, and tempered demand.

It’s a tale of two markets — optimism in some corners and frustration in others.

However — I wanted to dig even deeper. So, I talked to five dealers — from a small, single-store operation in rural Oklahoma to a Midwest powerhouse with dozens of dealerships. And guess what? They pretty much agreed with the comments — the big wild card is inventory management…

1. New car inventory is still very uneven, causing imbalances for dealers.

According to Cox Auto, after many months of new vehicle inventory sitting north of 2.5 million units, at the start of November, the supply crossed the 3 million threshold for the first time since the pandemic. 

• And since then — preliminary estimates show that another 80,000 new cars have been added to dealer lots. 

• This has pushed the average market days’ supply above 80 days for the third month in a row. But there are huge disparities between automakers.

For example — Toyota’s market days’ supply is just about a month, making it one of the fastest-selling brands. But for Josh Popham at Ourisman Toyota of Richmond, that tight supply is causing some problems.

And although Josh has a healthy allocation, the mix is heavily skewed toward trucks like Tacomas, which his store is now discounting to dealer invoice prices. Meanwhile, staples like the Highlander are practically nonexistent — Josh has a total of one coming in.

But Toyota is unique and the majority of the industry is dealing with an oversupply issue, not an undersupply. That’s why Gulf Coast dealer Matt Bowers approaches his new car inventory management with “extreme caution.” He told me he and his team purposefully keep inventories lean as often as they can.

For instance – his Louisiana Chrysler store (2nd largest in the state) has a 35-day market days’ supply of vehicles — very low by industry standards. But some of his oversupplied stores are struggling to be profitable, and floorplan costs with today’s current interest rates are turning into huge expenses.

However — when it comes to the used car market — nearly all the dealers I spoke to mentioned...

2. The right used cars are getting extremely tough to source.

The industry is now fully three years removed from the COVID market and is feeling the effects of the lack of lease returns that started as a result of pandemic-era production shortages. The decline in lease maturities disrupts a vital source of nearly new, low-mileage used cars that dealers depend on. And meaningful recovery isn’t forecasted until 2026.

On top of that — dealers are having to dig deeper on fewer trade-ins. Missouri dealer Bill Vaughn told me that consumers in his market are definitely holding on to their vehicles for longer due to a combination of affordability concerns and/or a high amount of negative equity.

But these higher prices have to hit someone — no such thing as a free lunch and all. And several dealers mentioned that their used sales volumes were solid but gross margins were down.

The market’s pressures are clear — but what’s less clear is the future of vehicle affordability…

3. Car buyers are catching some breaks — but affordability is still a moving target.

• The average new car APR was 6.8% in November — its the first time rates have dipped below 7% in six straight quarters. Average used APR are down too and now sit at 11% — 0.5% lower than in June. 

• And according to Kelley Blue Book — incentives from automakers rose 4.2% month-over-month — reaching $3,914 — hit a 3-year high.

The primary driver? Automakers' captive financing arms like Ford Credit and GM Financial have deals floating around at 2.99% to 3.99% APR (for the most credit-worthy borrowers), but with the Fed Reserve's interest rate cuts, these lenders could slash rates even further to keep pace.

According to Experian, the average monthly lease payment is ~$150 lower than financing. And for many consumers living paycheck to paycheck, the prospect of a significantly smaller monthly payment is outweighing the traditional benefits of owning a car outright.

Think about it — would you rather have a $350 payment for a much older, high-mileage car, or a new car with all the latest features and a bumper-to-bumper warranty?

It’s the exact reason why dealer Andy Wright is leaning into leasing heavily — almost reaching pre-pandemic levels of penetration. 

From his perspective, the economic headwinds consumers have been facing have led to a shift in mindset. More and more consumers have stopped caring about owning a “depreciating asset” — and instead — are looking at the overall costs of their mobility.

These are three of the top trends dealers are paying close attention to as the end of the year draws closer. What are you watching out for? Hit reply and tell me more.

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Thanks for reading. See you on the next edition…

—Car Dealership Guy

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