Car Market Did Something It Hasn't Done In 8 Months: Pay Attention This Friday

New car inventories have risen for the eighth consecutive month, which could indicate a shift in the auto market.

This Friday, the Manheim Index — the premier indicator of pricing trends in the used vehicle market — will release the latest update of its Used Vehicle Value Index. This data could further impact car prices and deals.

According to Morgan Stanley, incentives in the auto industry are creeping back in as inventory increases. Analysts question how long car prices can remain unaffordable and believe rising inventory will be a telltale sign of cracking industry price discipline.

Pseudo-anonymous Twitter user @CarDealerShipGuy said new cars are sitting longer on dealer lots, which means more inventory and potentially better deals.

The average days on the lot for new vehicles in the first quarter of 2023 were 34, compared to 24 days in the first quarter of 2022. DealerShipGuy said this is due to declining vehicle affordability and growing new car supply.

Cox Automotive said earlier in March that new-vehicle listing prices dipped slightly in February, but remained 6% higher than a year ago. Incentives also rose to their highest level since March 2022, at 3% of the average transaction price.

Cox Automotive Senior Economist Charlie Chesbrough expects incentives to increase further, especially for brands with high inventories.

The impact of these trends on leading automotive retail companies will be crucial to watch as they navigate the changing market dynamics. Investors should keep a close eye on stocks like Carvana Co CVNA, CarMax, Inc KMX, Vroom Inc VRM, and Asbury Automotive Group, Inc. ABG, as they could adapt strategies to take advantage of new opportunities. As consumer demand and industry incentives shift, these companies may find themselves in a favorable position to capitalize on the evolving landscape.

Days supply was 56, down two from January but up 21 days compared to February 2022. Historically, a 60 days supply has been considered normal and ideal. With some brands and segments nearing pre-COVID-19 pandemic inventory levels, discounting and incentives are rising.

Given these trends, Friday's update of the Manheim Used Vehicle Value Index could be a turning point for the auto market.

The index is closely watched by financial and economic analysts, and its release may provide insight into how the market will react to the ongoing changes in inventory and affordability.

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