Car Dealerships Cash In While Short Supplies Last

Auto shoppers holding out for a big discount may have a long wait, as auto dealers expect supplies of new cars and trucks to remain relatively scarce for the first half of 2021, and maybe even into the third quarter.

The good news is, prices could moderate later this year, and the selection on dealer lots could improve, too, along with the supply of new cars and trucks.

Meanwhile, several publicly traded dealership groups report they made record gross profits per vehicle sold in the fourth quarter. “We think it will continue to be elevated,” while the supply shortage lasts, said Heath Byrd, CFO for Sonic Automotive, in a recent conference call.

Sonic, based in Charlotte, N.C., reported record quarterly revenues of $2.8 billion, up 1.8% from a year ago, and all-time record quarterly income from continuing operations before taxes of $90.4 million, up 48.3%.

Sonic said its new-vehicle gross profit per unit was a record $2,932 in the fourth quarter on a same-store basis, up 31.4% from a year ago.

AutoNation Inc., based in Fort Lauderdale, Fla., reported separately its new-vehicle gross profit per unit was a record $2,775 in the fourth quarter on a same-store basis, up 50% vs. a year ago.

Sonic’s CFO said the inventory shortage should continue through the first half of 2021, and “start to normalize” in the second half. Supplies are short because consumer demand recovered faster than automakers could get their factories up and running again, following coronavirus-related shutdowns last year.

More recently, a shortage of computer chips is interrupting production and prolonging the shortage of new vehicles.

It should also be noted dealership profits aren’t high only because demand is high and supplies are low. On the cost side, dealerships around the country cut costs last year, especially by reducing headcount and cutting advertising, and that has also served to boost profits.

Those measures were emergency responses to the pandemic at first, but many dealer groups report they intend to stick to those cost cuts as much as possible, even though many jobs have been restored, and sales have largely recovered since last spring.

Dealerships also reorganized their businesses around digital selling, and pickup and delivery. Again, that was partly in response to the pandemic, but also responding to long-term customer demand for more and easier online access, similar to other retail industries.

Many dealership groups already had those changes in the works, but the coronavirus speeded up adoption.

Source: Auto Dealerships Cash In While Short Supplies Last