Diving Retailers’ Inventories, Collapsing New and Used Vehicle Inventories: The Shortages Shown In The Charts


Inventories at retailers document this mess.

By Wolf Richter for WOLF STREET.

It turns out that when the U.S. government spends $ 5,000 billion in borrowed fiscal stimulus over 16 months and the Fed distributes $ 4 trillion in monetary stimulus over the same period, sparking a surge in fiscal stimulus. asset prices, demand for goods will sweep across the land in tsunami-like waves, and supply chains winding their way around the world, amid finely honed just-in-time inventory strategies, become entangled. And as retail sales have grown historically, shortages of all kinds have arisen, including the semiconductor shortage that has hit the auto industry hard.

Inventories at retailers document this mess. Inventories are tight everywhere, but they are in a dire state at auto dealerships, which before the pandemic accounted for more than a third of total retail inventory.

Inventories at new car dealers, used car dealers and parts dealers fell to $ 153 billion in May, down 36% from May 2019, according to data released by the Census office Friday. And the inventory-to-sales ratio – with inventories and sales both in dollars, the impact of inflation cancels out – fell to 1.14, the lowest level of data dating back to 1992:

The inventory-to-sales ratio (inventories divided by sales) is a standard measure in the retail industry. A ratio of 1 means the retailer has enough merchandise in stock for a month of sales at the current rate of sales. It would be a 30 day supply. A ratio of 2 – that is, 60 days of supply – is considered healthy in the automotive industry.

In dollars: Ever more expensive vehicles in inventory over the years explain all of the long-term rise in inventory in the chart below. Retail unit sales – and unit inventories with them – have seen huge cyclical swings, up and down, over the past 20 years and have come to naught. In 2019, unit sales of new vehicles were at 1999 and 2000 levels, with just over 17 million vehicles sold, followed by a drop in 2020 to the 1978 level.

In terms of unit sales, the industry has stagnated for two decades. And unit inventories have followed this stagnation. What has changed are the prices of vehicles.

Dealers reserve vehicles in stock at cost (“invoice”), not retail. But the MSRP gives us an indication of what happened to dealer cost: The MSRP of the F-150 XLT, the best-selling truck in the United States, increased 80% from the 2000 model year ($ 19,410 ) to model year 2021 ($ 35,050). And the MSRP of the Camry LE, the best-selling car in the United States, increased 22% over the same period, from $ 20,388 to $ 24,970 (the pickup truck and car price index WOLF STREET).

In addition, there has been a large-scale structural shift from cheaper cars to more expensive SUVs and trucks, which further inflated the dollars tied up in inventory, without increasing the units in inventory.

It is with this skyrocketing unit costs in mind that we look at long-term dollar inventory levels. And that makes the 36% drop in total vehicle and parts inventories, from $ 240 billion in May 2019 to $ 153 billion in May 2021, all the more steep given the shift to more expensive units over the course of the year. of the period:

During the financial crisis, there was also a drop in inventories, but it was accompanied by a collapse in vehicle sales that prompted GM, Chrysler and a large number of component manufacturers to file an application for implementation. bankruptcy.

This time around, fueled by the stimulus, there was strong retail demand for vehicles in March, April and May, and it wasn’t until June, with stocks running out and sky-high prices, that sales have fallen sharply and are down 14% from June 2019. But current inventory data is only for the end of May, which was the basis of what was available for sale in early June.

Total stocks at all retailers, from car dealers to supermarkets, fell to $ 598 billion in May, seasonally adjusted, down 9.8% from May 2019, the third consecutive month of decline, but still up from June trough of last year. Those inventories in May and retail sales in May – which were down from April – produced the second-lowest inventory-to-sales ratio in data history dating back to 1992, the lowest being in April:

The peaks in the graph above occurred when retail sales suddenly fell – after the Lehman bankruptcy and in March and April 2020.

In dollars: The increases in the price of goods in inventory over the years partly explain the long-term rise in inventories in the chart below. Note that the decline in inventory over the past few months comes despite runaway cost increases (and price increases), as the stimulus-fueled retail boom has drained inventory:

Inventories without car and spare parts dealers, in dollars, are back on track for expansion, after hitting a new high of $ 444 billion in May, showing how much new and used vehicle inventories have plunged, while the Most of the other retailers have better control of their stocks, with shortages on certain products, and a more than abundant offer on other products:

But the increased cost of inventory items covers some of the sealing; and given the increase in retail sales from pre-pandemic years, the inventory-to-sales ratio, although it increased for the second month in a row, remains near its all-time low. Note the long-term trend (green line) of two decades of inventory rationalization strategies and the move to e-commerce with its inventory efficiencies (centralized warehousing):

Inventories in food and beverage stores, after last year’s empty spring shelves, broadly recovered and hit a new record high of $ 54.4 billion in May.

Because these stores’ sales were about 15% higher than before the pandemic, they lowered the inventory-to-sales ratio to 0.73, compared to the pre-pandemic multi-year average of 0.78. Food and beverage stores are generally increasing their dollar inventory, but turning it even faster, resulting in sporadic and brief shortages of a few items here and there.

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