On today’s show, we’re pleased to welcome back Bloomberg Intelligence’s Senior Automotive Analyst, Kevin Tynan. Tynan begins the conversation by sharing his thoughts on Q2 earnings. He says the past quarter revealed more bad consensus than really good performance. The second quarter of 2020 was plagued by uncertainty amidst COVID shutdowns. So, while many auto retailers are seeing massive increases in revenue and earnings, stocks are acting more to the beat of the consensus.
Tynan believes the industry is at a point where something has got to give. He adds that the industry is to a point where pricing is super firm. July numbers, in terms of MSRP, revealed that discounts fell below 1%, well under the average 6% that has been the previous standard. Analysts start wondering, considering supply issues, where consumers will start to push back on pricing.
Furthermore, car dealerships are now recognizing they don’t need four or five months of supply. Tynan says car dealers would be better off taking a conservative approach to inventory based on their particular level of output. Additionally, this realignment of the industry, including costs and supplies, is having a greater impact than any period of bankruptcy. However, car dealerships now have the opportunity to diversify their revenue base even more. Retailers have the ability to become healthier because business is much more well-rounded, which doesn’t push the pressure back on the automakers to say, we need more vehicles. For now, it appears like a win-win situation.
Tynan ends the conversation by discussing the balance of the year. He says the last two months in terms of the SAAR, were a little concerning. Currently, Tynan says that he is still predicting supply issues, and decreased consumer demand. We’ll see what the end of August reveals.
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