How Automakers and Dealers are Weathering a Topsy Turvey Market

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New Dealer Education is a requirement by the State of Washington to teach prospective dealers the laws, forms and requirements for creating a successful dealership as required by RCW 46.70.079 Section 1a.

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How Automakers and Dealers are Weathering a Topsy Turvey Market

BY AUTO DEALER TODAY STAFF

BMW released a positive forecast for 2021 based on “continuing positive pricing effects for both new and preowned vehicles will overcompensate” for falling car sales.

Months ago, the industry focus was on unprecedented demand, higher than ever prices, and record sales. Today, the picture looks bleaker.

The automotive industry saw its luck turn in Quarter 3 when light vehicles, sold in the U.S. at a seasonally adjusted annualized rate of just 12.2 million in September—the lowest in over a decade, with the exception of spring 2020.

The semiconductor chip shortage hampered vehicle production and deliveries to dealers in the spring. But at that time, ample inventories remained. Now dealers have few vehicles to sell except those vehicles manufactured with remaining chip supplies.

Prices skyrocketed as supply tightened. J.D. Power reports U.S. consumers paid an average of $42,368 for new vehicles in September, up 17% from September 2020. Production constraints also force car makers to prioritize higher-margin vehicles, like pickup trucks, which improves the sales margins.

BMW recently updated its profit forecast for 2021. They based the forecast on a belief that “continuing positive pricing effects for both new and preowned vehicles will overcompensate” for falling car sales. Skyrocketing pre-owned vehicle prices—which hit a new high in September—also feed into the returns automakers earn in their big leasing operations.

General Motors didn’t share BMW’s enthusiasm. The automaker expects a weak third-quarter profit. The chip shortage isn’t totally to blame. Profits took a hit with the automaker’s expansion of the Bolt electric vehicle recall. After 90 years as the top selling automaker in the U.S., GM’s market share fell to just 13.1% in the third quarter.

Smaller players reaped the benefits of a challenging market. Hyundai and its affiliate Kia reported a record 10.8% U.S. market share in the third quarter.

U.S. dealers are still thriving. J.D. Power estimates state that, as a whole, dealerships made $4.2 billion in profit from new-vehicle sales in September—a record for the month despite the inventory shortage. n