Car prices in the U.S. fell by 0.2% year-over-year in July, according to the latest data from the Bureau of Labor Statistics. This was the third monthly decline in the past seven months, after rising for 12 consecutive months from May 2021 to April 2022. The decline in car prices was mainly driven by a drop in the prices of used cars and trucks, which fell by 0.2% in July, after surging by 10.5% in June.
The fall in car prices was a welcome relief for consumers, who have been facing higher costs for personal transportation amid the pandemic. The average price of a new car in the U.S. reached a record high of $41,263 in June, up 5.5% from a year ago, according to Kelley Blue Book. The average price of a used car also reached a record high of $25,410 in June, up 26.4% from a year ago, according to Edmunds.
The rise in car prices was largely driven by supply shortages and strong demand. The global chip shortage disrupted the production and supply of new cars, leading to lower inventories and higher prices. The demand for cars also increased as consumers sought more personal mobility and avoided public transportation due to COVID-19 concerns.
Ford and GM shares tumble as lower car prices hurt their profitability
The decline in car prices was bad news for automakers, especially Ford (F) and General Motors (GM), whose shares tumbled on Thursday. Ford shares closed at $12.12 per share, down 4.8% from Wednesday. GM shares closed at $34.24 per share, down 5.6% from Wednesday.
The lower car prices hurt the profitability of Ford and GM, as they reduced their revenues and margins. Both companies have been enjoying record profits in recent quarters, thanks to higher car prices and lower incentives. In the second quarter of 2022, Ford reported an adjusted EBIT margin of 13.3%, up from 4.6% in the same period last year. GM reported an adjusted EBIT margin of 13%, up from 5.4% in the same period last year.
However, both companies warned that the lower car prices could reverse their profit momentum in the coming quarters. Ford said that it expects its adjusted EBIT margin to decline to between 7.5% and 9.5% in the second half of 2022, due to lower volumes and pricing pressures. GM said that it expects its adjusted EBIT margin to decline to between 10% and 11% in the second half of 2022, due to lower production and sales.
Ford and GM face other challenges besides lower car prices
Besides lower car prices, Ford and GM also face other challenges that could hamper their performance and stock performance in the future. Some of these challenges include:
- The ongoing chip shortage, which could continue to disrupt their production and supply of new cars until at least mid-2023.
- The rising competition from other automakers, especially Tesla (TSLA), which has been gaining market share and customer loyalty with its innovative electric vehicles.
- The transition to electric vehicles, which requires huge investments and poses technological and regulatory uncertainties.
- The potential regulatory backlash from the Biden administration, which has been pushing for stricter emissions standards and more support for electric vehicles.
Ford and GM have been trying to overcome these challenges by investing heavily in electric vehicles, expanding their product portfolios, improving their operational efficiency, and strengthening their balance sheets. However, it remains to be seen whether these efforts will be enough to sustain their growth and profitability in the long run.