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Automakers Offer Discounts as Inventories Rise to Pre-Pandemic Levels

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The U.S. car market is reportedly experiencing a surge in inventory levels, prompting automakers to offer significant discounts on their vehicles for the first time in years.

This trend, which includes both electric vehicles and non-electric vehicles, has raised concerns about overproduction and the potential impact on profit margins, Bloomberg reported Thursday (May 23).

Despite previous commitments to better balance supply and demand, automakers find themselves grappling with high inventory levels reminiscent of the pre-pandemic era, according to the report.

Automakers are resorting to substantial discounts to attract buyers and clear their inventory, the report said. For example, Hyundai has slashed $10,000 off its Ioniq 5 electric sport utility vehicle, while Ford is offering more than $8,000 discounts for the Mustang Mach-E. In some cases, the discounts on electric vehicles exceed 15% to 20% of average transaction prices.

The current inventory situation marks a departure from automakers’ previous commitments to avoid overproduction, per the report. General Motors CEO Mary Barra stated in 2022 that the company would never return to past inventory levels, emphasizing the importance of efficient operations. Ford CEO Jim Farley echoed similar sentiments in 2021, vowing not to repeat the mistakes of overstocking. However, recent data reveals that both companies, along with others in the industry, are facing high inventory levels.

High inventory levels pose challenges for automakers, including depressed prices and lower profit margins, according to the report. During the COVID-19 pandemic, temporary production halts and disrupted supply chains led to demand outpacing supply, giving automakers the advantage in pricing. Today, however, automakers are again facing the challenges of overbuilding and maintaining profitability.

Carmakers’ efforts to clear inventory by offering discounts and incentives could have implications for the used-car market, the report said. Used-car retailers closely monitor new-vehicle pricing trends to gauge future market conditions. Rising production levels may lead to an increase in preowned vehicles available for sale.

Carvana CEO Ernie Garcia predicts that rising production levels will benefit his company, as more pre-owned vehicles become available, per the report. However, the industry must remain vigilant to avoid an oversupply situation in the used-car market.