Despite More Inventory Dealership Profitability Declining

The automotive industry is going through a period of significant change. The commitment by major U.S. automakers such as GM and Ford to electric vehicles (EVs) is drastically changing manufacturers business models. Despite the large-scale shift, it is the current economic conditions including issues with credit availability and inflation that are acting as roadblocks to profitability. The Cox Dealership Sentiment Index – 2^nd Quarter 2023, found that many independent dealers are focused on maintaining profitability while addressing staffing issues. Until economic pressures relent, it is expected conditions will not significantly improve. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

About the Study

Data for the study was collected through an online quarterly survey of new and independent auto dealerships. The information contained is based on data collected from 1,060 respondents including 568 franchise and 492 independent auto dealers. The information is used to calculate an index where a value over 50 indicates conditions are generally viewed as being favorable. Report data was gathered between April 24 and May 7, 2023.

Key Report Findings

• Factors Holding Business Back – Given the uncertainty caused by inflation and other economic issues the study inquired about the factors which may be inhibiting business. It was found that 57% of respondents indicated the economy was the top factor holding business back, 51% high interest rates, 45% limited inventory 45% market conditions, 34% credit availability, and 33% overall operating expenses. Not surprisingly, issues with credit availability sharply increased from the prior quarter.
• Staffing Issues – A prime challenge for many independent dealers is staffing. It was found that 73% of respondents indicated sales have been most affected, 59% service, 23% parts, 14% marketing, 12% finance, and 5% management. The combination of high interest rates and decrease in credit availability has made it more challenging to sell vehicles. The result is an increased difficulty in finding and retaining sales professionals.
• Used Vehicle Sales Environment – There report also wanted to understand how the sales environment has changed over the last few months. It was determined that sales opportunities continue to decline (rating of 37) which continues the downward trend prominent over the last few quarters. The sales environment is at the lowest point since Q2 2020 (rating of 20).
• Used Vehicle Inventory Levels – The report found that inventory levels at independent auto dealers continue to decline. It was determined the available inventory declined (rating of 33) over the prior quarter (rating of 40). It is interesting to note inventory remains above the lowest point (rating of 19) in Q2 2021.
• Pricing Pressures – The limited availability of used vehicles makes it easier to charge a premium for certain makes and models. The report wanted to uncover how much pressure dealers felt to lower prices. It was determined that pressures remain high (rating of 60), which not only matches the prior quarter, but is the highest since Q2 2020.
• Profitability – It was also found that dealership profitability declined (rating of 37) over the prior quarter (rating of 40), which was already weak. In fact, profitability is at its lowest point since Q2 2020 (rating of 20).

Contact Us

It appears the confluence of economic factors has made it more difficult for Atlanta independent auto dealers to maintain profitability. This means dealerships need to carefully review operations and closely manage expenses until conditions improve. If you have questions about the information outlined above or need assistance with an accounting need or tax issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.