Limited Inventory a Persistent Challenge for Auto Dealers

As the Atlanta economy continues to recover, the pent-up demand for products and services is driving renewed growth and profitability. Restaurants, hotels, and other travel industry businesses are hosting more customers, taking more reservations, and experiencing more foot traffic. Unfortunately, the automobile industry has been unable to recover as quickly. Manufacturing has slowed due to a chip shortage and has left auto dealers with inventory imbalances. According to the COX Dealer Sentiment Index, Second Quarter 2021, many are still struggling to find inventory to keep up with demand. In fact, 55% of respondents indicated inventory acquisition is a top priority, while 63% indicated lack of inventory is preventing growth. Despite these complications, profitability continues to rise to allow dealers to recover to pre-pandemic levels. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

About the Survey

The survey was conducted online from April 26^th to May 10, 2021. There was a total of 1,139 auto dealer participants including 589 franchised dealers and 550 independent dealers. Responses are weighted by dealership type and sales volume to reflect the national dealer population.  The data collected is leveraged to create an index where a rating of over 50 indicates more favorable conditions rather than weak/negative.

Key Survey Findings

• Top Business Priorities – Given the number of both opportunities and challenges facing dealers, the survey wanted to understand the top priorities. It was found that 55% of respondents indicated finding/buying new inventory, 17% staying in business in general, 13% retaining customers, 8% improving sales and service solutions, 9% gaining market share and 5% retaining employees. It is important to note the number of dealers focused on finding/buying new inventory has more than doubled from Q1.
• Holding Business Back – There was also interest in identifying the factors which are holding businesses back. It was found that 63% of respondents indicated limited inventory, 38% market conditions, 29% impacts from COVID-19, 25% general economic conditions, 17% political climate, 16% credit availability for customers, 9% consumer confidence, 7% staff turnover and 5% consumer transparency in pricing. Like above, the number of dealers struggling with limited inventory increased by 20% over Q1.
• Customer Traffic to Dealership – The survey wanted to understand how customer visits have changed over the past three months. It was found that franchise dealers experienced an increase in foot traffic with a rating of 72, which is higher than the 46-rating received in Q1. For independent dealers, there was also an increase with a rating of 52, which is higher than the 24-rating received in Q1.
• Dealer Profitability – As the economy continues to recover, it is expected that auto dealers will once again be able to attract customers. The survey found that dealer profitability increased over the past 3 months. It was revealed that franchise dealers reported a sharp increase in profitability with a rating of 82 (up from 63 in the prior quarter), and independent dealers reported a 51 rating (up 20 points over the prior quarter). The increased profitability is not a surprise considering the costs of operating a dealership have remained steady.
• Used Vehicle Market – Consumer demand for used vehicles has increased sharply over the last quarter with both franchise and independent dealers reporting healthy gains. However, the challenge is maintaining inventory to meet demand. Both franchise and independent dealers reported more difficulties in finding used cars to fill the lot.

Contact Us

After months of struggling due to pandemic-related conditions, it is encouraging to see customer traffic and dealer profitability increasing. Unfortunately, the delays in receiving new car inventory have created challenges impacting both franchise and independent auto dealers alike. If you have questions about the information outlined above or need assistance with an audit, 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.