Wards Intelligence surveyed dealers throughout the U.S. to chart retail automotive's present health, electrification challenges and future opportunities. This is part of a series analyzing our survey results.
There is no precedent for the current state of the retail auto industry. The worldwide pandemic and a shortage of chips and other car parts have slowed or stalled vehicle availability. Low supply and high demand are a boon for dealers. Despite manufacturers’ prohibitions, many boost new-car prices well above list prices. The lack of new-car availability has also resulted in a shortage of used cars, making some more valuable than when they were first sold. Additional revenue comes from service centers, many of which operate at capacity. The year 2022 was a very profitable time to be a dealer.
Yet there are negatives for dealerships. Some worry about threats to the franchise model, the millions of dollars they must spend to become qualified electric-vehicle-sales and -service locations for some manufacturers, rising interest rates, high vehicle prices and the lack of skilled technicians and other employees.
One example involves Ford franchises. Those dealers who opt in to sell and service EVs must pay between $500,000 and $1.2 million to install charging infrastructure. That allows them to acquire Ford’s special certification status. The prices differ between the two tiers of sales and service certification and may include a cap on the number of EVs a dealership can sell. The costs may fluctuate depending on federal and local incentives available.
A Wards Intelligence survey of more than 300 U.S. owners/operators, general managers, chief financial officers and sales and service staff from various sizes of dealerships provides some insights into the state of the industry. The cross-section of respondents from both new- and used-vehicle dealers ranges from small (monthly sales of 80 and below) to large (monthly sales of 81 vehicles and more).
This report, the first of three parts, highlights the current state of the retail auto industry.
It’s likely no surprise that most respondents report that their dealerships have met revenue/profit objectives during the past 12 months. Demand has well outpaced inventory due to low new-car inventory amid chip and parts shortages and a lack of saleable used cars. Beyond that, industry experts commonly say list prices of cars are “the floor, not the ceiling.” That means list prices are no longer the highest price consumers can expect to pay for new vehicles. Instead, many dealers begin price negotiations starting with the list prices and work up from there, despite manufacturers’ prohibitions.
Those factors, combined with the end of incentives and rebates, are among the reasons dealership profits are at record high. J.P. Morgan recently published a report stating the U.S. average price of a new vehicle was up 6.3% in the last year. Used-car prices skyrocketed 42.5% between February 2020 and September 2022.
Industry insiders predict it will take at least three years for the supply of vehicles to catch up with the demand for them. But the same insiders also note this market will not last forever, at least not with the existing franchise sales model.
When we analyzed responses to this survey, we found that more than 50% of CFO respondents at stores of all sizes are heartened by the revenues/profit objectives over the past 12 months. The majority (80%) of CFOs at dealerships with 120+ sales per month report they exceeded (40%), far exceeded (20%) or met (20%) their goals.
The one downside was from CFOs at stores with 21-80 sales per month. More than a quarter (27%) of those respondents say revenues/profit fell short of expectations. Slightly fewer (22%) dealers in stores of that size have the same response.
The majority (84%) of dealers’ responses about meeting revenues/profit objectives over the past 12 months were positive. More than half (56%) of those at stores with monthly sales ranging from 81-120 sales per month report exceeding revenue/profit objectives over the past 12 months. Thirty-three percent of those respondents report meeting those monthly sales goals.
Survey results underscore reports that fixed ops have thrived during the past 12 months, with 78% of respondents reporting positive revenues/profit objectives. Seventy-one percent of respondents in dealerships with 120+ sales per month report exceeding expectations and 29% of respondents say they met expectations. More than half of their colleagues at dealerships with 81-120 sales per month report positive numbers. Results show 9% of respondents far exceeded, 45% of respondents exceeded and 18% met goals. But everyone isn’t positive. More than a quarter of respondents (27%) report they fell short of their goals.
The majority of fixed ops respondents (78%) also report they met, exceeded or far exceeded their profit goals. The sweet spot for fixed ops success seems to be at smaller dealerships. Those with 21-80 sales per month report the following results: far exceeded (29%), exceeded (14%) or met (43%) expectations, while only 14% say they fell short.
Speak to almost any industry insider about the future of retail automotive sales, and they will avoid predictions. Reasons include the shifting national economy and rising prices of cars, especially electric vehicles that generally have list prices about $10,000 more than their gasoline-powered counterparts. Many dealers are also disheartened by the millions of dollars they must spend to meet some manufacturers’ requirements for the sales and service of EVs.
Still, 20% of respondents are very confident and 39% are confident that they will meet their revenue/profit objectives over the next 12 months.
In this group, CFOs were especially confident their dealerships would meet those goals. Of those respondents, 28% were very confident, 44% were confident and 25% were somewhat confident they would reach those goals.
Dealership respondents across the board predict they will struggle with inventory shortages, rising vehicle prices and staffing shortages. Those were also their most significant challenges during the past 12 months, although numbers shifted somewhat.
Inventory shortages plagued 59% of respondents during the past 12 months. The number of respondents that believe inventory shortages will negatively impact them during the next 12 months sank to 53%.
Respondents who predicted significant shifts in inventory shortages between the past 12 months and the next 12 months included Chevrolet (74% past to 55% future) and Ford (48% past to 59% future). All respondents (100%) representing Volkswagen report inventory shortages were their most immediate negative impact in the past 12 months. Over half (59%) expect such inventory shortages to lower future profits.
Rising vehicle prices were a negative for respondents in all states, as were staffing shortages.
Respondents were clear about their wish lists to positively impact dealerships in the 12 months ahead. They want more inventory.
Although the number of available new vehicles is a moving target, Cox Automotive reports full-size pickup trucks from domestic automakers are back to almost pre-pandemic inventories.
Those shopping for larger, luxury cars will likely also have choices, especially if they veer toward Lincoln, Buick and Audi, reports Cox.
Non-luxury car shoppers will find choices at Ram, Jeep and Dodge dealerships, while Toyota, Kia, Honda and some other Asian brands have the lowest inventories, reports Cox.
Almost half (40%) of respondents also wish for an improved economy and 39% want improved consumer sales, financing and service experiences. As car buyers rely more heavily on digital shopping and financing, many dealers are migrating their operations to online services.
Overall, our report of dealership staff’s attitudes shows most are confident their past success will continue for the next 12 months, but concerns are on the horizon.