Car dealerships are raking in record profits this year despite the fact many stores are experiencing unprecedented low vehicle inventories.
Cox Automotive published the results of its third-quarter 2021 Dealer Sentiment Index this week, which uses dealer survey data to determine how auto retailers feel about the current state of the market. The survey found dealerships are struggling with vehicle inventory, with sentiment toward inventory levels falling from 44/100 in Q1 to 13/100 in Q3. Dealers also indicated the current new vehicle inventory mix is “poor” with an average sentiment score of 18/100.
Despite the fact dealers are running low inventory, they are experiencing record profits. Dealers indicated their profits are growing strong this year, with the sentiment toward profit margins rising from 63/100 in Q1 of this year to 86/100 in Q3. Franchised dealers also have strong sentiment towards their profit margins over the last three months in particular as incentives dried up and consumers put little pressure on dealers to lower prices or offer them a deal.
While low inventory levels helped drive demand and profits this year, dealers are starting to see the negative effects of this trend. While retailers are confident sales will remain strong in Q4, paltry inventory levels are now beginning to drive away consumers.
“Dealer sentiment has moderated from a record high in the spring,” explained Cox Automotive Chief Economist Jonathan Smoke. “Dealers are still optimistic about the coming months, but the new- vehicle inventory situation is not improving, and sales are suffering.”
Limited inventory was cited by 62 percent of dealers as the number one challenge holding them back at the moment. Market conditions were in the second spot rose at 37 percent, followed by the business impacts from COVID-19 in the third spot.
GM is predicting a more stable chip supply in 2022, which should help remedy some of the inventory challenges dealers are facing at the moment. Inventory levels are not likely to return to their previous high, however, with the industry expected to face production setbacks and other parts shortages for the foreseeable future due to continued effects from the COVID-19 pandemic.
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Comments
@C8.R, this is what I told you a couple weeks ago… Car dealers are making a fortune right now…
Some are but like I stated many of the small dealers are drying up.
No cars no sales no profits.
Even Serra Chevy and The local 4 Buick and GMC dealers here have nothing to sell, but the 22 Korean models.
They are living on auction cars if they can get them.
I will attend a car show at the one dealer this weekend. They normally have to clear the lot. This year it has been clear for a month.
on a per unit basis sure, not overall
Both these gentlemen are correct. Dealer profits are driven by volume, as even on a maxed out, no negotiation deal, we make 3-5% margins on the vehicle. If you’re a small dealer with no inventory right now, you’re SOL. The big guys are making it because all the consumers are forced to go to them since they have cars, and they don’t have to negotiate at all on price.
In other words if you are looking for a deal, forget about it. And you probably wont find what you really want anyway 😉
Depends on the model.
Also one Chevy dealer here is offering large discount on trucks that are not coming in for 6-8 weeks if all goes as planned.
They will deal if you are willing to wait.
They will let you keep your trade till the vehicle comes in even after the price is agreed.
Note we got a significant discount on our Acadia Denali. Also my father in law got a significant discount on his new z71 crew.
Just depends where you go. I am sure some areas they are not dealing and some models that are being not discounted like a Corvette.
But with the web today you can find a deal if you put in the effort.
Also other factors are in play. Service departments are working more since many can’t get what they want.
Also you have many dealer not keeping as large of staffs as they are not replacing people when they leave,
What is a “large discount”? Is that just the current $1750 rebate? What dealer in their right mind would be giving discounts on vehicles that aren’t even here when they know those will sell for sticker to anyone when they arrive? Seems fishy.
These shortages aren’t going to end. There’s too much money to be made this way. Just like Covid oh there’s a new variant, now another and another.
Not sure if you just are stupid but GM is losing money from this. It doesn’t matter if every dealer sold every gm car for $100,000 over MSRP, gm doesn’t see a penny of that. Sure they can give less rebates, but they are losing more than they save on every vehicle they can’t produce.
I’m thinking GM is using this crisis to drive their smaller dealerships out of business.
Of course getting a good deal in the future with fewer dealerships around will be a real adventure 🙁
Hmm, quick suggestion: How about you stop worrying about getting a “deal” on a new car and just accept that the sticker is a deal enough? The one thing I’ll hand to Tesla is that they have successfully conditioned their followers to accept what is on the price tag, just like nearly every other product. That mentality needs to take over the car business now, as it should have years ago. Granted, it’s not the consumers’ fault, it’s the idiocy of dealers and screwed up manufacturer incentives that encouraged them to never stick to a set price. Overall it has a horrible effect on the consumer and scares away many of them who don’t want to mess with the haggle and human interaction. They flee to services like Carvana who, ironically, often don’t negotiate AT ALL, offering a worse potential “deal” to the consumer, but many willingly pay up in order to avoid the hassle of a dealership.
I can think of few other industries where consumers believe that they have to go in person to barter with a salesman and eat into a retailers margin or risk feeling that they’re being “ripped off.” LET IT GO. The MSRP’s are set with a reasonable margin for the retailer to keep the lights on and provide you service, and still be competitive in the marketplace. Pay up, or don’t buy. Hopefully this massive supply shortage will teach the manufacturers, dealers, and consumers to accept the 21st century method of buying.
Cole G, you are freakin’ nuts. Saturn had a non negotiable price. I walked right out after they hit the car with a rubber mallet. Look at them now. Tesla is a feel good “status symbol” until the other manufacturers become competitive. How is Tesla doing lately w/o that govt rebate?
@Mick1 You wait and see. GM is already going there with their Bolt program pricing. Soon enough it’ll be “what you see is what you pay” at all dealerships, whether they’re independently or factory owned. And that’s a good thing for the consumer, as I explained, unless you’re one of the few who gets off by going in and arguing with a salesperson who makes his money on the margin that you’re trying to take away from him.
I had to special order my XT6 Cadillac (Premium Luxury). I wanted 2021 but dealer didn’t have color I wanted. So I have to wait on the 2022 model. Took a long process to build the specs and $5k deposit later I’m still waiting on updates. I suspect I won’t see my car until 2022 with shortage on technology.🤨
Two weeks ago I got what I felt was an amazing deal of over $8k off my ‘21 XT6 between my GMS pricing and rebates/discounts. Based on the current landscape I couldn’t say no and I love my new car!
I could do doughnuts in my local Chevrolet dealer’s lot and not even come close to hitting a new car. I counted six cars social distancing from each other. The only way they are making big profits is by having one salesman.