Where is the Car Market Today?

March 30th, 2022 by

The car market can be a volatile industry with ever-changing gas prices, supply and demand for new cars, and the unpredictable value of used vehicles. Both new and experienced dealerships alike may feel some impact from all three of these market factors. However, you can weather the storm if you know what’s going on and what to expect.

Today’s Gas Prices

Gas prices have always had a direct impact on the models being produced by auto manufacturers. When prices are low, the cost of gas isn’t much of a concern. Buyers are more interested in trucks and full-size SUVs and their capability. When prices go up, compact sedans and small pickups become more popular. The difference in how today’s rising gas prices affect new vehicles is that more buyers are looking at hybrid and electric models.

Projections for EV models for 2022 is well over what was sold in 2021, up by an estimated 30 percent. Along with saving on fuel, buyers like the low maintenance and lack of road noise with these models. Getting one of these electric vehicles may prove to be more challenging than buyers might expect.

Trade-in Volatility

One of the challenges for dealers and buyers alike in today’s car market is the volatility of the value of used vehicles. Partly because of the limited supply of new models, used cars have increased in price. This is good news for owners who are looking to sell their vehicles, but not as positive for buyers who have a limited budget and hope to afford a used vehicle.

Dealers have a unique problem with taking trade-ins.  They know the value of the used vehicle has increased, which means the trade-in value for the customer must go up. At the same time, they need to be able to sell the used vehicle at a profit. Car dealerships that are strategic will still maintain a profit margin even if they must pay a higher trade-in value to their customers.

Ordering Cars from the Factory

Because of several issues, which include the microchip shortage and delivery driver shortages, many dealerships have a limited supply of new vehicles. The alternative for buyers is to have a custom vehicle built for them from the factory. This option has major appeal but some drawbacks as well.

Buyers like getting a car that is customized exactly as they want – even if they have to wait for it. They get to choose almost all the details, except for what’s included in any special packages they want. Dealerships like having a vehicle sold before it makes it onto the lot where they must pay for it until it sells.

The downside for buyers and dealers is they must wait for the transaction to be complete. The buyer may be waiting for several months until the custom vehicle has been manufactured and delivered to the dealership. The dealer waits to get their commission until the vehicle is delivered and the paperwork completed. While the buyer can change their minds, the high demand for vehicles ensures the dealership isn’t worried about finding another buyer quickly.

Experts predict that it will be some time before supply catches up with demand and things can go back to the way they were pre-pandemic. In fact, the car market will most likely transform into a combination of the old and new with successful dealerships being the ones that best adapt to the changes.

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