Auto sales slowed by limited inventory, but car dealers keep seeing profit

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April isn’t shaping up to be as busy as it was a year ago. Continuing to be plagued by only a trickle of new units onto the lot, there isn’t the inventory that consumers are used to seeing at dealerships. But dealers continue selling the units they receive with profit margins that wouldn’t have even speculated in 2020 and early 2021.

J.D. Power and LMC Automotive’s joint forecast for April 2022 indicates that dealers have less than 900,000 units in inventory for the month. It makes it extremely difficult to deliver the volume they’re used to producing. The forecast predicts combined retail and non-retail sales of 1.24 million units, an 18.5% decrease from the same month last year, even including an extra selling day. SAAR for total new vehicle sales has been reduced to 14.5 million units. 

Thomas King, president of the data and analytics division at J.D. Power, said, “The April sales pace may look disappointing compared with April 2021, but last April’s record sales pace was enabled by the combination of extremely strong consumer demand and enough inventory (nearly 1.7 million units) to turn that demand into actual sales. This April, demand remains strong, but with fewer than 900,000 units in inventory at dealerships, sales volumes will necessarily be well below year ago levels.”

Dealers reaping the benefits of high demand

As has been true for six of the previous seven months, April’s sales profit per unit is looking like it will finish above the $5,000 high-water mark, at $5,046, including both front-end and back-end grosses. Despite significantly fewer deals, retailers are netting more profit than a year ago because of the higher margins. Average transaction prices are also expected to be at near-record levels, potentially the second-highest in history.

King said in the press release, “…As has been the case for the past two quarters, inventory constraints are delivering record prices and profitability. New-vehicle prices continue to set records, with the average transaction price expected to reach an April record of $45,232—an 18.7% increase from a year ago and the second-highest level on record behind $45,247 set in December 2021.”

No relief for consumers looking for a deal

Car shoppers should not expect to see familiar deals returning for Memorial Day Weekend next month if April is any indication. Incentive spend per unit has never been lower than it is now, simply because manufacturers move units without the need to offer discounts to make deals.

“Given the strong demand and lack of inventory, it is unsurprising that discounts from manufacturers continue to be minimal. For April, the average incentive spend per vehicle is on pace to reach an all-time low of $1,034, a decrease of 65.5% from a year ago. Incentive spending per vehicle expressed as a percentage of the average vehicle MSRP is also trending toward an all-time low of 2.3%, down 4.8 percentage points from April 2021 and the third consecutive month below 3.0%. One of the factors contributing to the reduction in incentive spending is the lack of discounting on vehicles that are leased. Leases accounted for 30% of all new-vehicle retail sales in 2019. This month, leasing will account for just 18% of retail sales.”

For dealers, everything except the limited inventory is good news. Higher profitability and even higher demand are making it a great time to be in the industry. But also, for those potentially looking to cash out while the prices are highest, dealer acquisitions are still commanding record prices too.


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