Some brands are getting heavier on inventory than others as shoppers’ concerns about rising interest rates dull demand

By Ryan Felton

The availability of new cars and trucks on dealership lots is bouncing back, and for some brands is stronger than expected.

Now, he is seeing stock levels swell, including on some specific models, he said.

“We need to enhance sales and stop ordering,” Mr. Kelleher added. “Because of the interest-rate climate, we have to think differently now.”

Overall, dealerships had about 1.8 million vehicles in transit or on lots at the end of April, a 50% improvement compared with the same period in 2022—but still about half the stock available two years before, according to data from industry-research firm Wards Intelligence.

U.S. auto sales have remained resilient, mostly because of pent-up demand, and even picked up in the first quarter of this year as inventory levels improved. Buyers are also still paying historically high prices—the average vehicle sold for about $46,000 in April—and the amount of discounting on the car lot remains well below prepandemic levels, according to data analytics firm J.D. Power. 

But fast-rising interest rates are making it harder for many buyers to get into a car they can afford, a dynamic that is starting to weigh on sales, dealers say.

With inventories also coming back, analysts say that pressure will rise to uncork the kinds of promotional deals that have dented profitability in the past.

“We’ve had some stores that have had a super successful spring, and some of the others that really didn’t see the uptick that we normally seasonally would,” said Phil Maguire, owner of the Maguire Family of Dealerships in Ithaca, N.Y.

“The demand is there, but they’re running into a drastic change in their monthly budget where car payments might be doubling,” he added.

Among the brands leading the inventory build are a number sold by global automaker Stellantis NV. Ram, Jeep and Chrysler each have about 100 days’ worth of unsold inventory or more at the end of April, about double the industry average, according to Cox Automotive. The figure compares with the 60 days that historically has been considered healthy for the industry.

The company’s hefty stock levels, along with declining U.S. sales in the first quarter, prompted one analyst at CFRA Research to downgrade Stellantis’s stock to a hold earlier this month.

“We’re seeing red flags in the inventory data,” wrote Garrett Nelson, the CFRA analyst.

Stellantis executives say the company has been building supplies ahead of the busy spring selling season and it is comfortable with its current inventory position, noting that the brands’ stock levels remain below what they were prepandemic. The company said overall it has 69 days worth of unsold inventory.

Buick, Jaguar and Infiniti were also heavy on stock, each carrying close to 100 days of unsold inventory, Cox’s data show. 

Spokespeople for Buick, Jaguar and Infiniti said their method for calculating days’ supply internally shows a lower figure, sales for the brands remain brisk and they are comfortable with their respective inventory levels.

Some other brands, such as Toyota and Honda, remain tight on inventory, carrying stock levels below the industry average, according to the Cox data.

Meanwhile, inventories of pickups have rebounded this year and are nearly back to prepandemic levels, said Mike Wall, an analyst with S&P Global Mobility. Truck buyers are even seeing the return of some sales that had disappeared when supplies were low.

“You know you’re back to normal when the truck month comes back,” he said, referring to automakers’ promotions that largely had gone away in the pandemic era because of short supplies.

Some analysts say the first-quarter prices were likely a peak for the industry, which now will have a harder time getting consumers to pay top dollar.  

Those concerns sent stock at both Ford Motor and General Motors down earlier this month, following robust quarterly profits that largely beat Wall Street’s expectations.

“We do expect the [the second half] to see more pricing pressures,” said John Lawler, Ford Motor’s chief financial officer, on an earnings call in May.

In the electric-vehicle market, Tesla already has cut prices by more than 20% this year for some models in the U.S. Ford also has responded by reducing the sticker price on its all-electric Mustang Mach E by as much as 8% on some versions.

Still, after years of empty lots and depressed sales, some dealers are giddy to have something to sell customers walking into showrooms.

“We have cars we can go out and hug now,” said Randy Dye, who owns a Daytona Beach, Fla.-based dealership that sells several Stellantis brands.

Some companies are racing to convert entirely to electric vehicles, but others see caution flags

Most car executives agree that a transition to electric vehicles is inevitable. How rapidly to make the switch is a central question, one that is driving divergent strategies.

Traditional auto makers have pledged to gradually transform their vehicle lineups to EVs, but timelines vary. If car makers get ahead of consumers on EV rollouts, that could inflate their costs and hurt sales of gas-powered vehicles, profits from which are needed to fund investments in electrification.

At the same time, lagging behind rivals in EV offerings could cost car makers the chance to establish themselves in a key growth area over the next few decades, executives say.

“We don’t want to risk missing the market,” Volvo AB Chief Executive Jim Rowan said during an earnings call this month. The Swedish auto maker is among those seeking to rapidly evolve into an electric-only manufacturer, saying it will offer an all-EV lineup by 2030. Last year, 11% of Volvo’s vehicle sales were electric.

Electric vehicles last year accounted for nearly 10% of global sales, much of it driven by Tesla Inc. and other EV-only players, according to research firm EV-Volumes.com. For many legacy auto makers, electrics were an even smaller part of the business. And while Tesla’s profits have surged, legacy car makers largely lose money on EV sales, because of high battery costs for their early offerings.

Across industries, companies are grappling with a fundamental tension of how quickly to move their business models away from fossil fuels. BP PLC, which for years championed a green revolution, this month said it would slow its transition to a lower-carbon business model and boost oil-and-gas production.

Meanwhile, governments from Beijing to Sacramento are pressing companies to decarbonize their operations. Last week, European Union lawmakers approved a law that will effectively ban sales of gasoline- and diesel-powered vehicles starting in 2035. California has set the same phaseout date.  

Green-minded investors also are agitating for aggressive efforts to reduce emissions. And traditional car executives have seen how richly investors rewarded Tesla and some other newcomers that have an all-electric strategy. Tesla’s stock valuation as of Tuesday was $659 billion, according to FactSet, more than that of General Motors Co., Ford Motor Co., Toyota Motor Corp. and Volkswagen AG combined.

Car executives from traditional auto makers point to factors partly outside of their control that could slow the industry’s rollout of EVs, including the availability of the key minerals needed to produce EV batteries and the readiness of electric grids.

The decision on how rapidly to pivot to EVs is a big one for a relatively small auto maker such as Subaru Corp. The Japanese auto maker must gauge how widely its customers will ultimately embrace plug-in vehicles, said Tom Doll, chief executive of Subaru of America Inc. 

His brand’s customer base has long been known for its green bent. And regulators worldwide are pressing the industry to move faster, he said.

“We’re all feeling the pressure,” Mr. Doll said earlier this month. “We have to make sure that the market is really going to tip toward it.”

Many consumers, particularly those in the U.S., are concerned about range issues, executives and analysts said. And while the Inflation Reduction Act has spurred investment in public infrastructure to let drivers recharge vehicles away from their homes, reliability of existing chargers is spotty. 

So far, car companies and suppliers have committed spending more than $525 billion globally through 2026 to fund the transition to battery-powered vehicles, according to consulting firm AlixPartners LLP.

Click for an inside the EV battery-making process graphic

GM and Ford are among the large global car companies with the most far-reaching EV ambitions. Ford has said it expects half of its vehicle sales to be fully electric by the end of the decade. GM is targeting 2035 as the phaseout of internal-combustion-engine sales for all but its heaviest vehicles.

Meanwhile, Toyota, the world’s largest auto maker by vehicle sales, has been earmarking less money than its rivals toward development of fully electric models. It instead wants to offer an array of choices, including its specialty, hybrid vehicles, which combine a gas engine with a small battery and electric motor to save fuel. 

Akio Toyoda, Toyota’s departing chief executive, has frequently shared his concerns around whether the industry is too narrowly focused on EVs, calling himself a spokesman for the industry’s “silent majority.”

Last month, Mr. Toyoda said he would step aside as chief executive in April and to make way for a successor who has pledged to have an “EV-first mind-set” for building out its future lineup. Even so, Toyota’s incoming chief executive, Koji Sato, has said the car maker remains intent on pursuing a strategy that doesn’t depend entirely on EVs.

Carlos Tavares, chief executive of Stellantis NV, the maker of the Jeep and Ram brands, has been similarly hesitant about racing ahead too fast. In particular, he has raised concerns about regulators pushing car companies to convert to battery-powered cars too quickly, and has said that a potential shortage of raw materials needed for the batteries to produce enough EVs could cause the industry to fall short.

“I don’t know if people will adapt to a new lifestyle as fast as the car companies have adapted to a new technology,” Mr. Tavares said Wednesday during a call with reporters to discuss 2022 financial results.

Mike Manley, chief executive of AutoNation Inc., a publicly traded dealership group, said auto executives have been talking more with dealers over the past year about what the pace of the EV transition should be. It isn’t an easy answer, he said, because there is uncertainty about the pace with which consumers will warm to battery-powered vehicles.

“At the end of the day, if it’s a problem” for the car companies, he said, “it’s a problem for us.”

Write to Ryan Felton at ryan.felton@wsj.com