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In today's edition:
📊 Auto market update: production & sales | inventory and pricing
📉 Why is CarGurus losing traffic faster than competition 🔒
⚡️ Lightning round with CDG: Mercedes subscription | Carvana’s fall 🔒
🎙️ What I'm seeing at the dealership floor🔒
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📊 Auto Market update
Vehicle production and sales show healthy growth
North American vehicle production rose 15% in October from a year earlier – a ninth straight month of year-on-year gains, according to Automotive News. The month’s output is 1.32 million vehicles.
Some supply chain and logistics issues are still lingering, and the annual production estimate was reduced to the total of 14.5 million units.

Total new vehicle sales for November 2022 are projected to reach 1.1 million units, a 5.6% increase from November 2021, adjusted for the number of selling days.
Dealer inventories reached 1.54 million units by the end of October, which is 51.3% above the same time period in 2021. Note that this number is still far from the typical 3.75 million units typical for the month prior to the start of the pandemic in 2020, however the improvement is evident. The trend of increasing inventories will continue and propagate into more affordable vehicles from the pricey ones, which will draw more consumers into the market and keep the demand healthy.
Given these advancements in production and inventory levels, I expect that car sales should continue to improve.
The continuing push for electric vehicles is seen across all OEMs. Market share of battery-electric vehicles (BEV) is expected to reach 5.9% in November. As before BEV sales are concentrated in coastal states, led by Los Angeles and San Francisco metropolitan areas representing nearly one-third of total sales.
Fun fact: GM dealerships have serviced 11,180 Teslas over the past two years.
The future of car dealerships is service, not sales.
— CarDealershipGuy (@GuyDealership)
Nov 28, 2022
An interesting observation is that the average price paid for a new EV declined in October by $2,286 (or -2.3%), but EVs are still deep in the luxury category with the average new EV price being $64,249, well above the average.
New car prices and dealer profits are still high
Kelly Blue Book reports that the average transaction price for a new vehicle increased $48,281, which is 3.8% higher than in October 2021. The average transaction price is still stubbornly higher than the average MSRP ($45,622), which means neither dealers nor OEMs are ready to offer discounts.

J.D. Power
The average incentive per vehicle is around $1,000, or 2.2% of MSRP. Leasing incentives are also dry; leasing is accounting for just 17% of retail sales, but was at 30% in November 2019.
Dealers continue to enjoy higher-than-ever profits, even with some inventory shortages still present. Total retailer profit per unit is about $4,359, which is down 15.4% from a year ago, but still more than double from its 2019 levels. However, dealer profits per unit are declining due to fewer vehicles being sold above MSRP: around 41% in November down from 50% in July 2022.
Fascinating chart showing dealership profits.
Fun fact: Over the trailing 12 months through June 2022, US dealerships earned on average an estimated $4.3 million, a 207% increase from pre-pandemic levels.
— CarDealershipGuy (@GuyDealership)
Nov 20, 2022
About 50% of all vehicles are sold within 10 days of reaching dealerships (down from 56.5% in March). Toyota, Kia, Honda continue having tight supplies.

Cox Automotive
I don’t see these trends continuing far into 2023. High interest rates are creating affordability challenges for some buyers, while increases in loan delinquencies forces lenders to tighten their standards. Interest rates are still increasing with the new car average rate is 7.63% and the used one 11.96% according to Cox Automotive.
University of Michigan’s survey revealed that people expect inflation of around 5% next year. The majority of consumers have adjusted or are planning to cut their spending, which translates to keeping vehicles they currently drive longer.
Consumer inflation expectation

University of Michigan
A big driver of inflation is fuel prices that are still high. The US Energy Information Administration (EIA) expects gas prices to continue declining, as refiners increase production to meet demand. The projection is for prices to reach $3.60/gal in February 2023, and then remain flat. That being said, gasoline is still 41% higher than at the beginning of 2020.
I believe that used car prices have peaked, but new car prices will remain elevated through the end of the year. In 2023, prices are expected to decline by 2.5% to 5% for new cars and by 10% to 20% for used cars.
Used cars price are catching up to realityÂ

Manheim
Black Book reported that sales rates at the auctions are weak due to the holiday season as well as sellers who continue to hold firm on prices and buyers remaining selective. The number of unsold vehicles at auctions is trending up and is now around 49%. Rental companies increased their presence at auctions and were very competitive among each other. There are more vehicles of the 2022 model year appearing in auction lanes.
Wholesale prices dropped by another 0.89% last week.
Retail prices also declined by but not as much as wholesale prices, as dealers can afford to keep prices high due to some pent-up demand that still has to be fulfilled. Used retail prices are now up only 2% from last year, which means that retail prices are now starting to reflect declines in wholesale prices. The average listing price of a used car was $27,564 at the end of October.

Cox Automotive
Falling used car prices are leading to less trade-in equity for new vehicle buyers. The average trade-in equity for November is trending toward $9,197, down $905 since the peak in June 2022. For context, November 2022 trade equity is still more than double the pre-pandemic level.
The total supply of unsold used vehicles on dealer lots was at 2.44 million units at the close of October, which is close to pre-pandemic 2019 levels. Brands with the lowest days’ supply of used vehicles are Honda, Hyundai, Lexus, Mazda, Toyota and Volkswagen according to Cox Automotive.
In December and early 2023 vehicle availability will keep improving, which will lead to higher sales, but at lower per-unit prices and profitability. Overall the industry is strong, with healthy demand and steadily improving supply.
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📉 CarGurus visits declined 2.5 times faster than Cars dot com's in Q3
Cargurus:
- Stock down 63% YTD
- Web visitors declining
- Bad reputation with dealersAlso Cargurus:
— CarDealershipGuy (@GuyDealership)
Nov 30, 2022
CarGurus is still a leader in car shoppers’ traffic, but they should be concerned as its traffic declined much faster than its closest competitor cars dot com. I believe these are the reasons for the decline:
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