Detroit Automakers Overstocked – Are Massive Price Drops Coming Your Way?

Detroit automakers are amassing considerable inventories, preparing for potential labor strikes. Amid a decrease in the average transaction price for electric vehicles, Tesla continues to dominate market shares with its strategic price reductions. With a substantial overstock of vehicles, Detroit car manufacturers are well-positioned to weather labor disputes while still meeting market demands.

Key Points

1. The average transaction price (ATP) for Tesla models in the US fell by 19.5% year over year in August, triggering a surge in sales. ATP for all-electric vehicles (EVs) fell by nearly 18% year-over-year from over $65,000 to $53,376, showing a massive drop in EV prices. However, Tesla still managed to be the #2 automaker in California due to their aggressive price cuts.

2. Tesla, along with other EV makers, has had a direct impact on other automakers, forcing them to rethink their pricing strategies. This is causing a shakeup in the industry and putting pressure on the prices of lower-end internal combustion engine (ICE) vehicles.

3. Despite price cuts and increased incentive spending by automakers, inventories at dealers and in transit have increased to 2.06 million vehicles, the highest since March 2021. Specific brands like Honda, Kia, and Toyota are almost out of stock while brands of Stellantis are overstocked.

 

Detroit Automakers Overstocked and Braced for Strike Amidst Dropping Prices

Amidst the lower price cuts ringing through the automotive market, Detroit automakers find themselves overstocked and ready for potential disruptions like a strike.

Significant Drops in Average Transaction Prices (ATP)

According to Cox Automotive’s report, Tesla models experienced a 19.5% year-over-year decrease in the ATP in August. This was a significant deviation from the initial strategy most EV makers were adopting; targeting the higher end of the market where they believed the ‘easy money’ resided. Evidently, Tesla’s aggressive pricing tactics have begun to drag down prices at the top. Meanwhile, other automakers have followed suit, implementing their own price cuts through increased incentives.

Automaker Year-over-year % Change of ATP
Tesla -19.5%
Nissan-Mitsubishi -4.9%
Geely -4.0%
Honda -2.9%
Mazda 0.1%
Mercedes-Benz 12.4%
Volkswagen Group 13.9%

Surge in Sales Amidst Price Cuts

Contrary to expectations, consumers are not shunning these price drops. On the contrary, sales have surged, particularly for Tesla. With significant year-over-year increases in Q2 global deliveries and U.S. sales, Tesla secured its position as the second-largest automaker in California, trailing not far behind Toyota and well ahead of Honda.

Decoding Market Conditions

The bottom line is clear: consumers are welcoming these price cuts. It is a bitter pill to swallow for legacy automakers who have long enjoyed the benefits of oligopolistic pricing. However, for the market to maintain this momentum, there needs to be a deluge of non-luxury EV models to maintain the pressure on the low end of ICE vehicles.

The Strikes — A Mixed Bag for Automakers

While lowered prices and surging sales provide respite, domestic automakers, currently overstocked, are now eyeing the possibility of potential UAW strikes. Stellantis brands, particularly red-flagged due to large inventories, could weather a strike longer than some other brands, such as GM and Ford, where the impact could be felt on sales much sooner.

 

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