December 16, 2021

Ongoing Inventory Issues Plague Auto Dealers

Nearly every auto dealership is facing significant inventory issues making it difficult to offer customers the variety and options previously available. Many domestic automakers such as Ford have been forced to shut down or slow the production of new vehicles. The lack of microchips and the limited availability of parts needed for assembly have dealt a devastating blow to the auto industry. Many dealers’ lots are virtually empty featuring only a few new vehicles where in years past there would be 100 or more. The lack of new car inventory has forced franchise dealers to shift attention to used cars.

The change of focus has created new challenges for independent auto dealers especially when it comes to inventory acquisition. As franchised dealers search for used car inventory, it makes it more difficult for independent dealers to keep lots full. According to the Cox Automotive Dealership Sentiment Index, 4^th Quarter, inventory acquisition is the biggest challenge facing dealers. In fact, it was found that 62% of respondents indicated inventory management as a key factor holding businesses back. At the same time, profitability continues to climb to record highs. To help clients, prospects, and others, understand current market conditions, Wilson Lewis has provided a summary of key report findings below.

About the Report

Data for the report was gathered via a quarterly online survey conducted from October 25^th to November 8^th. It includes responses from over 590 independent auto dealers located across the nation. Dealer responses were weighted by sales volume to be representative of the national dealer population. It is important to note that data is used to calculate an index (from 0 to 100) where a score of 50 or greater means more dealers view conditions as strong or positive and lower scores reflect the opposite sentiment.

Key Findings

• Factors Holding Business Back – The ongoing issues with inventory are certainly presenting challenges, but the report wanted to understand the other factors holding the business back. It was found that 49% of respondents indicated market conditions, 37% the economy, 30% business impacts from COVID-19, 27% increasing expenses, 14% tightening competition, 14% credit availability for customers, and 8% staff turnover. It is interesting to note that technology to support operations and sales, along with dealership systems continues to decline as a top challenge.
• Top Business Priorities – The report also wanted to identify the top business priorities considering the ongoing challenges. It was found that 44% of respondents indicated buying new inventory as a top priority, 13% retaining customers, 10% retaining employees, 8% gaining market share, 5% improving service and sales solutions, and 4% reducing expenses by cutting unnecessary costs. It appears there is very little interest in either selling existing dealerships or acquiring new locations.
• Used Car Sales – The report also wanted to understand the used car sales environment and tertiary measures such as used car inventory. It was found that the used car sales environment is good (rating of 70), used car inventory is poor (rating of 36), and the used car vehicle inventory mix is average (rating of 50).
• Pricing Pressures – The limited amount of inventory available for independent auto dealers makes it difficult for pricing pressures to have a negative impact on the bottom line. However, the report wanted to understand if pricing pressures are a concern. It was found that pricing pressures are dropping (a rating of 37).
• Dealership Profits – The good news for independent dealers is that over the last three months profits continue to remain at high levels (a rating of 81). While this is a slight drop from the last quarter (84), it reflects the reality of limited supply against high demand.

Contact Us

It appears that inventory concerns are continuing to create issues for Atlanta area independent auto dealers. While profits are inching higher many are struggling to find the cars needed to keep the lot full of different options. If you have questions about the information outlined above or need assistance with tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.