As the U.S.-Israel war on Iran is poised to affect the automotive industry, dealers here meanwhile must grapple with imbalances between their supply and consumer demand.
A monthly Cox Automotive U.S. auto inventory report shows areas of margin risk as automakers and their franchised dealers adjust to a market that’s been roiled by inflation and now faces wartime effects.
Just as business had started to pick up in anticipation of the spring selling season, the war commenced and threatened to drag down already low consumer sentiment. The sales pace rose 2% in February, though that was still down by nearly the same figure year-over-year, Cox reported.
Meanwhile, inventory expanded 4% to about 2.9 million units, settling at 92 days’ supply as dealerships built their stocks for spring shoppers. But some pockets failed to match consumer demand patterns, Cox said.
The sweet spot appeared to be models priced between $35,000 and $45,000. One tier higher at $45,000 to $55,000, though, is hitting returning middle-income buyers with sticker shock, according to Cox. That tier’s inventory sat at 120 days’ supply at the end of February.
Cox pointed out the automakers facing the most exposure in that weak spot. They include the particularly vulnerable Stellantis brand Jeep, whose days’ supply hit 151. And that’s not even its worst oversupply; Jeep’s inventory reached 165 days in January.
Ford also found itself on the wrong side of demand in February at 121 days’ supply, Cox said.
“Such imbalances resolve through margin pressure first via carrying costs, then incentives,” said Cox Executive Analyst Erin Keating. “Jeep’s aggressive new product launches and selective price reductions suggest awareness of this dynamic.
Still, automakers and retailers are picking their spots when it comes to incentives instead of applying them broadly, Cox said.
“For dealers, February’s lesson is less about volume and more about alignment,” Keating said. “Where inventory matches real demand, the market functions well. Where it does not, adjustment is underway and will likely accelerate as spring demand either materializes or fails to arrive.”
