For dealerships, higher margins per vehicle more than make up for the decline in new vehicle volume due to computer chip shortages, said Earl Hesterberg, president and CEO of Houston-based Group 1 Automotive, one of the nation’s largest new vehicles. retail chains.
“Demand is extremely strong,” he said in a conference call on April 27 to announce first-quarter earnings. “We sell most units almost immediately after the manufacturer’s delivery.”
Thomas King, president of the data and analytics division at JD Power, said recently at the New York Auto Forum that 2022 is “the most profitable year ever for retail dealerships.”
The Forum was hosted by J.D. Power, the National Automobile Dealers Association and the Greater New York Automobile Dealers Association in conjunction with the New York International Automobile Show.
For example, Group 1, said that in the first quarter, new vehicle gross profit per retail unit more than doubled compared to the first quarter of 2021, averaging $5,479. New vehicle volume was down 14.2% on a same-store basis. Total revenue for Group 1 increased 11% to $3.2 billion, also on a same-store basis.
Most automakers in the US market report auto sales volume only once a quarter. According to Motor Intelligence, those reports for automakers that provide monthly sales data are due on May 3.
Forecasters expect sales to drop by about 20% in April 2022 versus April 2021, but that’s because new vehicles are in short supply relative to high demand, not because of a lack of demand. Dealers said that so far, the resulting record-high transaction prices are not turning customers off.
Apart from the paucity of new vehicles, the switch in consumer preferences for SUVs, crossovers and pickups is also driving up the average price. On average, trucks are larger and more expensive than passenger cars.
Hesterberg says higher prices may someday hit demand, but it’s still a distant threat to most new car buyers, as most new car buyers have good credit histories. Logically, affordability is a major hurdle for buyers with riskier subprime credit — especially with rising interest rates, he said.
“It’s a very price-sensitive, interest-sensitive market, but we’re not really in that market,” Hesterberg said.
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