New car sales have fallen, but car dealers have never had it better

New car sales have fallen, but car dealers have never had it better

For dealers, higher margins per vehicle have more than made up for the decline in new vehicle volume caused by the computer chip shortage, said Earl Hesterberg, president and CEO of the Houston-based company. Group 1 Automotiveone of the country’s largest retail chains for new vehicles.

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

Thomas King, president of the data and analytics division at JD Power, recently said: New York Auto Forum that 2022 is set to be, “without a doubt the most profitable year ever for retailers.”

The forum was hosted by JD Powerthe National Association of Car Dealersand the Greater New York Automobile Dealers Associationin combination with the New York International Auto Show

For example, Group 1 said that in the first quarter, new vehicle gross profit per unit of store more than doubled compared to the first quarter of 2021, to an average of $5,479. New vehicle volume decreased 14.2% on a same store basis. Total Group 1 revenues were up 11% to $3.2 billion, also on a same-store basis.

Most automakers in the US market report the volume of car sales only once a quarter. For those automakers that do provide monthly sales data, those reports are expected on May 3, according to Motor Intelligence.

Forecasters expect sales to fall by about 20% in April 2022 from April 2021, but that’s because new vehicles are scarce relative to high demand, not a lack of demand. So far, the resulting record high transaction prices don’t seem to deter customers, dealers said.

In addition to the shortage of new vehicles, the shift from consumer preferences to SUVs, crossovers and pickups is also pushing up the average price. Trucks are on average larger and more expensive than passenger cars.

Hesterberg says high prices may one day stifle demand, but it’s still a distant threat to most new car buyers, given that most new car buyers have good credit histories. Logically, affordability is a bigger hurdle for buyers with the riskiest subprime credit — especially with interest rates rising, he said.

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