It’s been two years now, and we’re all too familiar with the way pandemic has strained production lines and supply chains. The effects of the chip shortage and the cost of commercial freight have trickled into new (and used) car pricing. Dealers have been getting away with market adjustments because car supply is understandably low. The refrain we hear often about car buying is “wait it out.” It’s good advice, based on the idea that car prices can’t possibly stay this high. But they can and they very well might.
A new report from Bloomberg cites the CEO of AutoNation, reportedly the “largest car dealership in the U.S.,” who claims that the high prices people are paying as a result of the pandemic are here to stay. And that’s mainly because the discounts that buyers have come to expect are not coming back:
Tighter inventories have allowed automakers and dealers to book fat profits by selling more cars at or above their sticker prices, and the absence of discounts will persist even as vehicle production ramps up in the second half of 2022, the chief executive officer of AutoNation told investors in an earnings call Thursday.
“We will not return to excessively high inventory levels that depress new-vehicle margins,” AutoNation CEO Mike Manley said. “Significant discounting and high incentives can also damage a brand, which is another reason for our industry to balance appropriately supply and demand.”
The AutoNation CEO relayed this information on an earnings call, during which the company posted record profits. That underscores the idea that dealerships didn’t need help to be buoyed during the pandemic.
If you’re like me and thought, well then suck it, AutoNation!, and expected to turn to other dealer chains, I’m sorry to tell you that carmakers such as GM and Ford have caught on as well. From Bloomberg:
Executives at General Motors Co. and Ford Motor Co. have signaled they will throttle production even as computer chip shortages that have forced them to cut output start to ease. The two companies, which have long coped with large inventories on dealer lots that prompted discounting, are eager to preserve their higher profit margins.
The problem isn’t limited to one chain. An estimated 80 percent of new car purchases came in over sticker price in January, according to Edmunds.
High inventories. Large inventories. That’s the pattern I’m seeing in reference to new car discounts. But if carmakers don’t want large inventories on dealer lots, then why not cut the lot out entirely? Go to a direct model and sell to consumers without the dealer as an intermediary.
Or if we want to get technical and say that new car discounts are the only thing at stake here, then OK. Except it goes both ways. If buyers don’t get discounts, then dealers shouldn’t get markups. Forget suggested retail pricing; make it compulsory! Then again, if discounts are gone for good and prices stay this high, at least we’ll always have Alfa.
