There have been winners, losers, and a lot of discussion surrounding the direct-to-consumer model in retail automotive during 2022. Kevin Tynan, Senior Automotive Analyst for Bloomberg Intelligence, talks about some of these headlines and makes predictions for the next year’s swing today on Inside Automotive.
As the year comes to a close, automotive retailers are making three times as much money, but they are still waiting for inventory. Tynan claims that the year 2022 has been a pendulum swing due to a decrease in customer pricing power, manufacturer incentives, and dealer discounts that have existed for decades. Meanwhile, automotive retailers are watching for changes in the market that will cause the pendulum to swing back in another direction.
Nonetheless, as we move into 2023, manufacturers are increasing MSRP prices, factories are cutting down on output, trucks, and SUVs are still in high demand, and the majority of automakers are climbing the used car market by selling fewer vehicles. Tynan adds, “At our peak in 2016, there were 17.5 million units selling at an average price of $35,000; when you multiply those two numbers together for a revenue pull, the results are smaller than in a 15 million unit market selling at $47,000.”
Essentially, part of the larger macroeconomy conversation results in inflation. The driven supply gives a sense to automakers to become content with producing fewer units. In other words, leasing has been the unspoken blessing of 2022. Additionally, one method of inventory control is leasing. Since consumers will purchase vehicles at sticker prices as the world evolves, eliminating the need for incentives.
According to Tynan, “supply can drive seasonally adjusted prices with the demand to match” because there was a positive element in 2022. Inventory started to pour in the latter half of 2022, but 2023 will bring strong demand and supply constraints.” The residual risk, according to Tynan, “is a part of the pendulum swing that will drive leases and prices in 2023 to the risk we should be accepting in dealerships.”
On the other hand, “the options we had in ’08 and ’09 led automakers to push the market to 80% trucks and SUVs to protect automotive retailers from encountering another difficult time, particularly with a potential recession looming again.”
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