Backdrop
During the pandemic, auto sales fell off a cliff, but recovered swiftly. The most recent data shows, however, that car sales are slumping again. Why?
Sudden changes in auto sales can be demand or supply driven.
- In normal circumstances, a sudden decline in auto sales leads to a corresponding increase in auto inventory
- If the decline is supply driven, a decline in auto sales will be accompanied by a decline in inventories, as dealers sell of remaining stock to meet demand.
Let’s take a look at the data.
Predictably, during the pandemic, car sales dropped, accompanied by a spike in inventory. This suggests that the decline was demand-driven. More recently, however, the very low inventory suggests that car sales are supply-constrained.
Why Does It Matter?
Motor vehicle sales represent a sizable portion of consumer spending. At this stage it is not straightforward to assess how important supply constraints are in the overall economic picture, but from this data it is clear that supply bottlenecks are real.
Interestingly, while all automakers seem to suffer, a look at detailed data seems to suggest that notably light truck sales are driving the decline. Given the importance of trucks for U.S. car makers, they are among the hardest hit.
Updates to these charts will be posted on Twitter as new data becomes available.