Approach Born Out of Post-Pandemic Supply Chain Issues Has Continued
In the wake of post-Covid supply chain shortages and the subsequent sharp drop in new vehicle counts, Cloud Theory began to capture and track the location status of inventory—in other words, whether a car or truck was “in-stock”, “in-transit”, or “ordered”.
In August 2022, when new vehicle inventories were hovering at just over 1MM, more than one-third of the total was in-transit as OEMs and dealers were intent on signaling to consumers that cars were on their way. Today, that figure is down to almost 21%. But it is important to note that with a new vehicle inventory count of 2.9MM, this equates to more than 600,000 cars and trucks—64% above the level from two years ago.
While the proportion of vehicles in this classification has diminished, the prevalence of them has actually increased over time.
The paradigm shift that occurred in response to an industry-wide crisis has therefore taken root on a longer-term basis, with implications for OEMs, dealers, and consumers alike.
For the industry, there are differences in how OEMs allow, enable, and even encourage the listing of vehicles that are not yet in stock. Some import manufacturers, for example, support a dealer’s ability to display a car or truck once it has been produced at the factory, even if it still needs to run the gauntlet of being shipped, arriving in port, and being transported to the lot for sale. Others are more conservative in their designations (or have less of a gauntlet to run if it is produced domestically), shortening the in-transit time window. Regardless of the approach, the allocation and emphasis of demand-generating activities such as incentives and marketing spending needs to take into account the status and timeline of an OEM’s inventory position relative to its competitors—who has what and where it is in the pipeline.
The numbers point to those differing approaches and philosophies. First of all, import brands such as Toyota, Subaru, Mazda, and Audi have the highest percentages of vehicles that are in-transit. Secondly, while most OEMs’ proportions have come down dramatically in the past two years, two makes—Toyota and Honda—have significantly added to their ratios in that timeframe. While those two manufacturers have emerged out of the post-pandemic period with substantially leaner inventory positions than they had prior, they have counterbalanced that approach with a more liberal communication approach to showing vehicles that have not yet arrived on dealer lots.
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One key consideration in all of this is that—unlike in the early days of inventory shortages when in-transit was being used to instill patience in consumer buying decisions—the current inventory positions give those consumers less of a reason to exhibit that patience. Honda and Toyota have a long-standing trend of selling their vehicles efficiently, so they have more leeway in marketing vehicles that have not yet arrived. Even so, they—along with all other OEMs--would be wise to strike the right balance between promoting available inventory and signaling to consumers that more is on its way.
