Dealer Net Profits Rise During Supply-Chain Crunch
As everyone reading this blog well knows, there has been a shortage of new vehicles this year due to a variety of factors. Although the auto industry is continuing to struggle with supply-chain constraints, one area that is seeing record profits is car dealerships. Dealers have seen net profits rise by 112-140% this year. According to data from the National Automobile Dealers Association, profits are up 65 percent on new car dealerships (with foreign imports performing the best) and 36 percent on used car dealerships.
NADA’s mid-year report reflected this strong rebound and trajectory, with a June YTD sales increase from $437 billion to 600 billion as of June. The average retail selling price of used vehicles sold by new-vehicle dealerships rose from $21,210 to $24,540 in 2021. NADA reported that reduced incentives and high demand increased average transaction prices to over $40,000. As of September, that number topped $45,000.
A New York Times article on AutoNation, with more than 350 franchises, confirmed this explosion in profits across the board. AutoNation doubled its profit in the third quarter of 2021, primarily on the strength of low incentives and strong demand for used car sales. This increased demand saw AutoNation’s new vehicle inventory shrink to approximately 10% the inventory it had on hand in 2019. That leaves little downward pressure on prices of vehicles going out the door.
Industry groups express cautious optimism for next year as well. With additional supply chain constraints, they anticipate the demand for cars to continue to outpace supply, leading to a continued higher level of profits.
