A seller’s market for those with cars to sell


Pent-up demand from coronavirus lockdowns has brought car and truck buyers back to the market, but once there, they may see little wiggle room on price. With limited inventory, dealers are often taking top dollar for the vehicles they do have.

For several weeks, the average industry gross, or the gross profit dealers get on new-vehicle sales, has been climbing rapidly. It stood at $1,028 for the week ending July 12, compared with just $404 a year earlier, according to J.D. Power. And it’s up from $353 for the week ending April 19, when the industry was in the midst of the coronavirus outbreak.

Keating Auto Group President Ben Keating has seen his dealerships’ average grosses climb, but he said “it’s not because we’re charging MSRP — it’s still a competitive market.”

There’s simply a lack of vehicles.

“In other words, when everybody can order everything they want, and every Ford dealer has that F-150 SuperCrew XLT, we all beat each other to death to get that customer’s business,” said Keating, whose group has 19 stores in Texas. Now, customers in the market for a new pickup will not find as many choices. “And so when the customer searches the Internet for the purple with pink-polka-dot-interior F-150, they only find one,” Keating added. “And they go in, and they buy it.”

Hence the rising average gross over the past several weeks.

“It is a very imperfect analogy that new cars in July are as scarce as toilet paper was in April in grocery stores,” said Tyson Jominy, vice president of data and analytics at J.D. Power.

As a result, average grosses and average selling prices are trending up since the height of the coronavirus-shutdown period — at a time of year when they would normally be trending down, Jominy said.

For the week ending July 12, the average vehicle sales price as a percent of sticker price was 95.8 percent, compared with 93.5 percent a year earlier and 93.2 percent for the week ending April 19.

When automaker incentives were included, the figure was at 87.7 percent vs. 85.4 percent a year earlier. It’s also up from a trough the week ending April 19, when it was just 83 percent.

“If you’re not confident that there’s going to be another vehicle coming anytime soon to replace the one that you sell, you hold for gross,” Jominy said. While pickups and SUVs are notably in high demand, grosses have been up across all segments, he said.

AutoNation Inc., releasing its second-quarter results last week, said same-store gross profit per new vehicle jumped 22 percent from a year earlier to $2,194, driven by inventory shortages. Same-store gross profit per used vehicle rose 23 percent to $1,801.

At the end of the second quarter, the nation’s largest new-vehicle retailer said, new-vehicle inventory was down 41 percent, or by 26,400 vehicles, from the same time in 2019. AutoNation’s used-vehicle inventory also is tight, as demand outpaces supply.

“It’s very reminiscent of 2011, when the Japanese factories closed due to that horrific tsunami,” CEO Mike Jackson told analysts in an earnings call when asked about supply constraints and higher gross profits. At that time, the company saw no reason to rush cars and trucks out the door.

“We just adjusted our prices and felt that we would get a higher yield … and that’s exactly how it played out,” Jackson said.

An AutoNation initiative called We’ll Buy Your Car brought in 6,000 vehicles in the second quarter, and the company said it expects to purchase 3,500 autos from consumers in July to boost inventory.

With many dealers seeking used vehicles, wholesale prices have climbed to record levels.

“We’re seeing wholesale prices that almost match the retail market,” said Lee Payne, owner of Planet Honda and Planet Hyundai in Golden, Colo. That’s made it difficult to buy cars and trucks from auctions, so Payne’s stores are focused on getting them from consumers and not passing up on trade-ins. Used inventory is tight, with supply below 20 days, he said.

Cox Automotive put the national supply of retail used vehicles at 32 days at the beginning of last week, down from 45 a year earlier, which is a typical supply.

Open Road Auto Group President Mike Morais was fortunate to have loaded up on some rental vehicles in the spring, anticipating a new-vehicle shortage, despite the risk that the market would be flooded with unwanted vehicles.

With 19 stores in the Greater New York City area, which was hit hard by the virus, Morais said the goal now is to keep inventory filled through September, when he anticipates any pent-up demand from the coronavirus shutdowns to ebb.

“Especially with used-car prices at a premium right now, you’ve got to be really careful because that fall [in price] could be extraordinary,” he said.

Jominy, of J.D. Power, said as long as plants keep producing vehicles and there are no further shutdowns, supply and demand could normalize by the fourth quarter.

“It seems for all purposes driven by an imbalance of [automakers’] ability to produce and assemble vehicles because of the virus and consumers remaining in-market so strongly,” he said.

Texas dealer Keating said he doesn’t expect much normalcy before December. “It’s going to be a slow, gradual process,” he said.

That process, as he sees it, starts with new-vehicle inventories being replenished, which automakers are working toward now. Then new-vehicle incentives will need to go higher, helping to make used vehicles less attractive to buyers. And finally, used-vehicle values should fall back to earth.

In the meantime, Keating said he has instructed his general managers to not get too comfortable with the high rate of used-vehicle sales and to avoid loading up on inventory that could be worth much less in a matter of months.

“Don’t kid yourselves,” he told them. “We’re going back to normal.”

Melissa Burden contributed to this report.

Products You May Like

Articles You May Like

Muñoz: EVs are a key piece of Hyundai’s growth strategy
This Montana Mansion Comes With A Dyno And Enough Parking For 72 Cars
Tim Allen reveals his current car collection
Tesla’s European factory opening delayed until 2022, sources say
The New BMW M3/M4 Drift Analyzer Is Fun, But Could It Be Dangerous?

Leave a Reply

Your email address will not be published. Required fields are marked *