Car Pro Commentary: Incentives & The Upcoming Inventory Shortage

I talked last Saturday extensively about a couple of things. One was the crazy incentives going on right now, and second was the impending shortage of new vehicles we'll see in June.

One person wrote me to question me on the inventory shortage. He did not seem to believe this was not only possible, but is a near certainty when you know the facts. It is really quite simple: the hottest vehicles sell first and there are none of them coming in for a long time.

The automakers set the massive incentives at the first of May, not knowing how much pent-up demand there was. So far, May is shaping up to be a banner month for sales in the areas where dealerships are open. One reason is the wide array of incentives, 0% APR financing, deferred payments, massive rebates, help for those with poor credit and the list goes on. If the automakers could pull back on incentives, they would. It is overkill.

That leads us to the shortage. Factories have been closed for two months. That means no vehicles arriving at dealerships. Dealers have been selling out of the inventory they had on hand since late March. Most dealers keep a two-month supply of vehicles on hand, which works out nicely since replacement inventory arrives almost daily. Those shipments have not been coming in.

To make matters worse, Memorial weekend is one of the biggest of the year, which will further deplete inventories.

Some of the assembly plants came back online this week, but slowly, with staggered shifts, and often running into parts shortages. There are over 10,000 different parts that automakers purchase from suppliers-which are struggling themselves-and it only takes one little part to keep a vehicle from being built.

Vehicles successfully built now won't arrive until mid-July, and those built far away won't arrive until sometime in late July or after, especially those that have to come by boat.

BOTTOM LINE: The summer outlook for popular vehicles is a severe shortage starting in a few weeks, especially popular trucks and SUVs. Given that, there will be no need for big factory incentives, and as always, when supplies are short of anything, prices go up.

I can't stress it enough, if you have plans to take advantage of this amazing time to get a new vehicle, do it by May 31 or it will cost you.