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Lower production is driving up new car prices — and automakers' profits

Car manufacturers and dealers are making more money by selling fewer vehicles at higher prices — and this could be a lasting transformation for the U.S. auto industry.

Driving the news: After the chaos and disruption of the pandemic, sales and production of vehicles in the U.S. remain well below pre-COVID levels.


  • The annual rate of U.S. retail vehicle sales is now hovering around 13.5 million, down about 22% from the 17.5 million in 2019.
  • New vehicle inventories at dealers are incredibly low, with just 1.1 million cars available at the end of June. In 2019, there were more than 3.5 million in stock.

The intrigue: Making and selling fewer cars might seem to be a bad thing if your job is making and selling cars.

  • But for vehicle makers and dealers, the new system is working out pretty well for a very simple reason: price.
  • Prices of new and used cars are up roughly 30% since the end of 2019, according to consumer price index data.

By the numbers: The price surge has more than offset revenue declines from the slump in unit sales, resulting in strong profitability for both automakers and dealerships.

  • Last year, GM booked $10 billion in profits, its best performance in over a decade. It's projecting profits of $9.4 billion to $10.8 billion this year.
  • Ford posted operating income — profits from its core car-building business — of $10 billion last year. It was the company's best performance since 2016, despite producing 6% fewer cars than the previous year.
  • Dealers are also raking it in, as soaring prices have inflated their profit margins. In a recent survey of auto dealer franchises by Cox Automotive, over 82% of respondents said profits were strong, despite a dearth of cars to sell.
Data: Cox Automotive; Chart: Axios Visuals

The big picture: The supply chain recovery story — mostly focusing on the availability of semiconductors — may obscure the reality that the auto industry may never return to its before-times patterns.

  • Instead, we could be seeing the birth of a new business model, emphasizing lower production levels, higher prices and fatter profit margins.

What they're saying: "It works fine for automakers and dealers," said Michelle Krebs, an analyst with Cox Automotive. "They're not going to be in a rush to go back to the old way of doing things. And in fact, we don't think we'll ever go back."

Yes, but: There's one group that's likely to be unsatisfied with the new status quo: consumers.

  • The average transaction price for a new car in June was $48,000 — a new record, according to Cox.

The bottom line: "The new car market has really become a luxury market," says Krebs. "A lot of Americans are frozen out of it."

(Full disclosure: Cox Automotive is owned by Cox Enterprises, an investor in Axios.)

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