Cloud Theory has commented extensively about the rise in new vehicle inventory, with counts increasing by 90,000 in September and by the same amount in October. Almost halfway through November, it is apparent that inventory will grow by a sizeable amount again in the current month.
In recent On the Horizon reports—which summarize the supply, demand, and efficiency dynamics in the marketplace—we have seen signals that the rise in inventory has been accompanied by turn rate and pricing pressure. The industry hasn’t reached pre-pandemic oversupply levels, but it is not far off. Current inventory levels of 3.17 million will come under additional competitive strain if we continue to march toward the 3.4-3.5 million counts that were the norm until Q1 2020.
It is easy to get lost in the macro-picture of these trends and see the forest without looking at the trees. That macro-picture is made up by an aggregation of individual OEM decisions and actions around specific models. It is understandable that after several years of supply-chain challenges, each OEM has internal pressures to contend with—workforce utilization, plant capacity, new model introductions, and MYCOs, not to mention sales and profitability targets. But there are beginning to be a lot more trees in this expanding forest, which comes with consequences.
The best way to pinpoint the contributors to and consequences of this supply expansion is to compare the inflows (inventory added) and outflows (vehicles moved) of models in the marketplace. There are ten models with net gains of 10,000 units over the past 90 days, and eight of them have seen turn rate declines in that timeframe. The Ford F-150 is one exception, with a small gain of 0.4 points, while the other is a newly introduced model, the Kia K-4. Of the top 30 models with net positive inventory inflows, 25 of them lost ground on turn rate. Conversely, 9 of the 10 (and 21 of the top 30) vehicles with the largest net outflows saw turn rate increases.
It is noted that three of the top four net inflow models are Ford products—F-150, Bronco, and Escape— and that brand has five other models (Maverick, Transit, Expedition, Bronco Sport, and Ranger) in the top 30, pointing to an aggressive inventory replenishment effort by that manufacturer.
OEMs will, no doubt, continue acting in their best competitive interests and producing vehicles to meet their own strategic objectives. But in doing so, they should closely monitor the real-time effects of their actions in light of the actions of others. In other words, they should—to paraphrase Lucy Van Pelt from Peanuts—make sure that they can have “faith in the future” when planting each tree.
