Some car dealers are raking it


You’d think a record car production since World War II would be bad for business, but many dealerships are taking advantage of the congested supply chain.

Rick Ricart, president of Ricart Automotive Group in Columbus, OH, told Morning Brew that a recent sale that would have taken four hours before the chip shortage was closed in 52 minutes. Customers no longer wait for the arrival of a model with additional functionality, because no one knows for sure when it will be.

“I love this world,” said Brian Miller, president of Manhattan Motorcars and owner of luxury car dealers in New York City. Sales are down 20%, he said, and depending on the model, customers are waiting six to 18 months for their new car due to the semiconductor shortage. Yet 95% of everything that comes in sells almost immediately, so Miller is happy.

The dire shortage of semiconductors has slowed factories around the world. As a result, lower production means $ 210 billion in lost revenue for the industry this year. And yet, Haig Partners reports that dealer profits jumped 197% in the first quarter of 2021 compared to the first quarter of 2020.

Auto retailers enjoy lower operating costs with less inventory, and the imbalance between supply and demand means buyers pay more for new and used vehicles, sometimes thousands of dollars above the price. Manufacturer’s Suggested Retail Price (MSRP).

Sales volume fell 26%, leaving franchise owners scrambling to find inventory to fill their empty lots. Tim Fuller, part owner of Hunter Dodge Chrysler Jeep Ram Fiat in Lancaster, Calif., Said his 7-acre lot typically holds 1,200 vehicles, but currently only exhibits 200.

Without its usual stock of new high-end sports cars for sale, Manhattan Motors salespeople have shifted their tactics to calling old customers, asking if they wanted to end a lease or sell their third or fourth car. The same is happening in Ohio. “People are selling cars to us for more money than they bought them a year ago,” Ricart said.

Other owners also had to get creative. According to Fuller at Lancaster, one automaker has announced that it is monitoring DMV records to make sure delivered cars are already sold, as some dealerships appear to be faking sales to acquire more inventory.

Unable to get its usual batch of higher trim level Ford F-150s that require nearly 2,000 semiconductors each, Ricart turned to developers – aftermarket companies like Roush Performance – who buy vehicles from from separate manufacturers’ lease pools to bolster them with big tires and a lift. kits. Ricart will take as much as he can get his hands on.

“What is surprising is that the average selling price of these trucks is around $ 100,000 and consumer demand is still so high,” he said.

But the money left on the table because of lost opportunities is a frustration that dealers in all marquees feel. Fortunately, the shortage is also being offset by the strong used car market and rising service revenues now that customers are keeping their vehicles longer rather than replacing them.

“Our used car volume has increased by 30% this year, which was absolutely necessary as our new volume is down a little more than that,” Ricart said.

This change has been good for the bottom line of the industry. All dealerships interviewed for this story declined to share revenue figures, but AutoNation, the largest auto retailer in the United States, reported record second quarter 2021 revenue of $ 7 billion with profits. gross of $ 4,157 per new vehicle sold, nearly $ 2,000 more than the previous year and 130% compared to the second quarter of 2019.

Sonic Auto Group, one of the nation’s largest auto retailers, also achieved record quarterly second-quarter revenue of $ 3.4 billion, up 58.7% from a year earlier. . However, small single-point operators can be more negatively impacted than large automotive groups.

“We still have people working here who need to make a living and feed their families,” said Fuller, whose only location sells vehicles produced by Stellantis. “[They’re] not going to earn that much without selling more volume.

With a diversity of brands to help them stay afloat, Ricart says he’s been successful in keeping his team of 550 employees, and despite fewer sales, sustained activity means salespeople are making more money.

The limited supply not only increased the sale price, it significantly reduced the need to advertise. There are no fights between dealerships to make a sale, and the nationwide shortage of inventory has all but eliminated negotiation, according to Ricart and Miller.

Stephanie Brinley, Senior Automotive Analyst at IHS Markit, expects the situation to stabilize in the first half of 2022. Nonetheless, rising backorders and increased consumer demand for electronics mean it will take a lot of time for supply to balance with demand. Another reminder that the pandemic is not yet over.

But from Miller’s perspective, there was excesses in the market before the pandemic, and he’s not eager for manufacturers to return to “normal” production levels. “We have a fair price and the customers are happy,” he said. “And there aren’t too many cars. For me, that’s how it should be.”

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