New car sales are down, but auto dealers have never had it so good

For dealers, higher margins per vehicle more than offset lower new-vehicle volume due to computer chip shortages, said Earl Hesterberg, president and chief executive of the Houston-based company. Group 1 Automotiveone of the largest new vehicle retail chains in the country.

“Demand is extremely strong,” he said on an April 27 conference call to announce first-quarter results. “We sell most units almost immediately after delivery from the manufacturer.”

Thomas King, president of data and analytics at JD Power, said at the recent New York Automotive Forum that 2022 is shaping up to be “hands down, the most profitable year ever for retail dealers.”

The forum was moderated by J.D. Powerthe National Automobile Dealers Associationand the Greater New York Automobile Dealers Associationin conjunction with the New York International Auto Show.

Group 1, for example, said that in the first quarter, gross margin per new vehicle retail unit more than doubled from the first quarter of 2021, to an average of $5,479. The volume of new vehicles is down 14.2% on a comparable store basis. Group 1 total revenue increased 11% to $3.2 billion, also on a like-for-like basis.

Most automakers in the US market report their auto sales volume only once per quarter. For automakers that provide monthly sales data, those reports are due May 3, according to Motor Intelligence.

Forecasters expect sales to fall about 20% in April 2022 from April 2021, but that’s because new vehicles are in short supply compared to strong demand, not lack of demand. So far, the resulting record high transaction prices don’t seem to be deterring customers, dealers said.

In addition to the shortage of new vehicles, the shift in consumer preferences towards SUVs, crossovers and pickup trucks is also pushing up the average price. On average, trucks are larger and more expensive than passenger cars.

Hesterberg says high prices could one day stifle demand, but that remains a distant threat to most new-car buyers because most new-car buyers have good credit histories. Logically, affordability is a bigger hurdle for buyers with riskier subprime credit, especially with rising interest rates, he said.

“It’s a very price and interest rate sensitive market, but we’re not really in that market,” Hesterberg said.

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