Will economic headwinds make a dent in dealer profitability? Charlie Chesbrough explains.

As the automotive retail industry settles into the third quarter, analysts are reviewing mid-year sales data and updating their forecasts for the remainder of 2022. Today on Inside Automotive, we’re pleased to welcome back Charlie Chesbrough, Senior Economist and Senior Director of Industry Insights at Cox Automotive to break down key data points from the first half of the year and what the industry can expect moving forward into the fall.

The auto industry continues to have a shortage of new vehicle inventory and there has not been significant improvement in the semiconductor chip shortage situation either. Chesbrough and other analysts at Cox Automotive believe this is what is keeping sales low. In the background, the economy is worsening and concerns about high inflation, rising interest rates, and consumer confidence are growing. This could spell trouble for the vehicle market. However, Chesbrough says the data doesn’t reveal a tremendous impact on auto dealers.

There is also the growing threat of a recession, but Chesbrough is not too concerned about the impact it would have on new vehicle sales. There are a number of car buyers still waiting for the vehicles they ordered months ago, to be delivered. Chesbrough also says that car buyers today are more affluent and wealthy, and are more insulated from economic conditions.

Since 2021, new vehicle sales volume has averaged about 1.3 million units per month. The auto industry continues to be stuck near that level, starting last August. Cox Automotive expected a slow first half in 2022 and predicted that circumstances would improve in the second half. Unfortunately, there has been no data to suggest that the second half will be substantially better.

Supply remains constrained in the marketplace. The chip shortage is starting to get better, some report. Chesbrough expects the supply chain to improve in the first half of 2023. Despite this, dealer profitability remains strong according to Cox Automotive dealer satisfaction surveys. And it will likely continue that way. The demand for used vehicles will stay elevated as will margins. Chesbrough doesn’t see any reason to believe that prices will come down any time soon.