Competition for vehicles is also fierce on the low end, since people with thin financial cushions and in-person jobs can’t afford to forgo transportation, which in most of the country is synonymous with a car. The job market has remained strong, especially for in-person jobs in fields like hospitality and health care, so more people have workplaces to get to.
And many people in between, who might switch cars every few years, are waiting for prices to fall.
“What we’ve seen is the disappearance of the middle,” said Scott Kunes, chief operating officer of a dealership group in the Midwest. He faults the automakers for abandoning cheaper, smaller, basic cars that people need just to get around, especially as interest rates put fancier versions beyond reach. “It doesn’t make any sense to me at all.”
The situation may start to resolve itself soon. Wholesale car prices have begun to fall, and carmakers are offering more incentives. Kelley Blue Book data shows that average prices have fallen below list for the past two months, which Jonathan Smoke, chief economist at Cox Automotive, said signaled that demand was easing. Prices have come down in recent months for electric cars — the fastest-growing segment of new car sales, though a small portion of the overall market.
Recent history has shown, however, that pricing trajectories are rarely linear. Adam Jonas, an auto industry analyst with Morgan Stanley, said that over the short to medium term, more inventory was the only answer.
“Even though the statements from the Japanese and the Koreans are that the chip shortage is ending, it takes many months to spool it up,” he said. “Dealers should prepare for a tight summer.”
Jack Ewing contributed reporting.