OEM executives believe that the COVID pandemic has created a new normal for certain aspects of the car market, according to a survey conducted by mergers and acquisitions firm Kerrigan Advisors.
Since 2020, industry insiders have been waiting for the car business to “recover” and return to its original state. However, the OEM executives who participated in the Kerrigan Advisors survey expect some things to never be the same. For example, new vehicle profit margins have gone up significantly since COVID. Out of 115 study respondents, 90% saw new vehicle profit margins remaining inflated for the foreseeable future, with a smaller majority expecting the gap to narrow. Additionally, while dealership earnings have fluctuated heavily since 2019, participants expected to see retailer profits start to decline in the coming months, with days’ supply remaining below pre-pandemic averages.
Kerrigan Advisors also asked respondents what changes they expected to see in the electric vehicle market. OEM executives expressed differing opinions on how EVs will be sold, with 20% expecting prices to be exclusively non-negotiable and 32% expecting dealers to use the standard MSRP system. The remaining 48% foresee a combination of negotiable and non-negotiable pricing systems.
Participants additionally shared insights on whether the agency model, used frequently by car manufacturers in Europe, will see wider adoption in the U.S. The topic has been one of special importance to dealers, who have seen direct-to-consumer sales become more prevalent in North America since the COVID pandemic thanks to non-franchised EV brands such as Tesla and Rivian. But most OEM executives dismissed the idea. “The data on EV pricing was enlightening,” said Erin Kerrigan, co-founder and managing director of Kerrigan Advisors, “as was data that showed few see the much-discussed EV agency model coming to the U.S., with just 22% projecting that change, likely due to the strength of state franchise laws in the U.S.”
This last result should be good news for car dealers. While OEM executives seem to agree that the industry has reached a new normal when it comes to issues of pricing and profitability, the survey results suggest that manufacturers are still committed to operating under the same traditional systems that have made the car business successful. “The results also demonstrate the value OEM executives place in their dealer networks, even as the auto retail model evolves,” Erin Kerrigan concluded.
