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.