With so many articles discussing how poor automotive sales have been through 2021, one could be forgiven for thinking this was going to be a hard year for anybody owning a dealership. However, the reality of the matter is that it’s a seller’s market and those who can sell are making a killing off everyone else’s misery.
The National Automobile Dealers Association (NADA) has reported that the ongoing deficit of product has helped the average store rake in more money than they did in 2020, breaking the previous twelve-month profitability record. Today’s average dealership is reporting a net pretax profit of about $3.38 million through October for 2021. That’s more than twice what was tallied within the same timeframe last year and really goes to show how much money can be made when the customer’s needs are the only items being discounted.
We’ve covered escalating automotive pricing for a while now, with Matthew Guy having just shared the latest on the absolute madness that is the secondhand market. That piece also explores some of the long-term ramifications of having the market that’s gotten so far out of whack — which could be handy for anyone thinking about purchasing another vehicle soon.
But it’s really not much better for those buying new. Thanks to dealer markets and lengthening loan agreements, margins are high across the board. NADA estimated that the U.S. retail gross profit per new vehicle was averaging around $3,928 for 2021, whereas used vehicles were averaging at a very close $3,651 per unit.
Those estimates are conservative and fail to take into account just how much rates have pitched up in the latter months, however. If we take a look at December, most tracking the market have the new vehicle profits averaging around $5,000 per car. For example, J.D. Power recently told Automotive News that the average dealership made roughly $5,200 on every new car sold last month — which is more than triple what they were making over the same period in 2019.
The good times — for dealers — should continue into the new year: 2022 is likely to be the most profitable year dealerships have ever recorded, as inventories remain at near-record-low levels, said Tyson Jominy, J.D. Power’s vice president of data and analytics.
While production is expected to rebound this year, the additional volume should be quickly absorbed by retail and fleet customers starved of vehicles last year. “With 4 million to 5 million units of pent-up demand, vehicles are barely going to touch the dealer lot before they are delivered,” Jominy said.
The only real positive angle there is to this is the fact that the extremely lean volumes we’ve encountered all year finally pitched back up in December. New-vehicle inventories were at an insanely low 15-day average for both October and November. However, December saw the number increase by anywhere between 2 to 5 days, depending on who you’re asking. According to NADA, the number of used vehicles retailed by the typical U.S. dealership through October also rose by 6.3 percent. Though this did nothing to harm profitability, as gross profit continued to climb by 67 percent on new product and 36 percent for secondhand wares.
Considering how well this appears to be working for the industry, we’re not sure when the gouging will dissipate. The semiconductor shortage, which has made an incredibly convenient excuse for shocking low production volumes, is now supposed to stretch out through 2022. But there are general supply issues that similarly need to be addressed and even the idyllic scenarios leave the North American market failing to manufacture anywhere near enough vehicles to meet pent-up demand.
Looking to get a square deal on an automobile this year? Perhaps it’s time to update your bartering tactics for 2022 and remember that it pays to have done your research in advance. Learn everything you can about the car in question and what it might be going for elsewhere. Now may also be the time to study up on where the salesperson and their immediate superior lives and does their shopping. Make it a point to bump into them as often as possible, reminding them about how intensely disappointed you would be if you thought you weren’t getting anything other than a fair deal. If that doesn’t seem to be working, try strengthening the relationship further by sending an unsigned and out-of-season Christmas card addressed to literally everyone in their household! Surprise them back at the dealership later by asking if they received anything interesting in the mail recently and laughing heartily in fellowship before getting back to business.
You could also simply hold off on buying a new vehicle — provided your present situation even allows for that — in the desperate hope that others will be following suit. Dealers currently aren’t taking the hint because consumers continue selling out the big bucks. If the market shows that the outer limits of vehicular pricing have been reached, odds are good prices will come back down through 2022. Though this assumes that production volumes have likewise returned to something approaching normality. For now, dealers are gearing up for suppressed output and even bigger profits by the end of 2022.
[Image: Gretchen Gunda Enger/Shutterstock]
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