These days, retail automotive dealers are getting a refresher on supply and demand economics.
On the supply side, the pandemic-induced slow down put a crimp on the volume of new vehicles as factories shut down and parts suppliers faced significant shipping challenges. In April 2020, a record low 103,000 new vehicles were manufactured. By contrast, a little over 2 million vehicles were built in January 2021 and Edmunds forecasts that 15.5 million new cars will be sold in 2021, a 6.5 percent lift compared to last year. New vehicle manufacturing is clearly back on line, yet some glitches will remain as the supply of certain semiconductor chips and electronic components are still scarce.
On the demand side, new car prices are skyrocketing. In December 2020, the average transaction price for a new vehicle hit an all-time record high of $40,573. These rising prices are driving many people out of the new car market, forcing people to look elsewhere for a vehicle. The used vehicle market is also experiencing pricing challenges. According to the Manheim Used Car Index, Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased 3.79 percent month-over-month in February. This brought the Manheim Used Vehicle Value Index to 169.2, a 17.9 percent increase from a year ago and a record high for the Index. For high-demand vehicles such as SUVs and pickup trucks, the price jump is even higher.
