Dealership Profits Breaking Records During Car Shortage

Dealership Profits Breaking Records During Car Shortage

 

America’s car dealers have spent most of 2021 struggling to find enough cars to sell. But they’re not hurting. They’re shattering profitability records.

According to a report from the National Automobile Dealers Association (NADA), net profit before tax at the average new car dealership through the first nine months of 2021 was up an astonishing 128.2% over the same period in 2020. Net profit includes both operating profit and the incentives some automakers pay to dealers who exceed sales targets.

Dealerships selling domestic cars saw their pre-tax net profit rise 112.6%, NADA says. Those selling imported cars saw an even greater increase, 140.6%.

Microchip Shortage Leads to New Car Shortage

Prices for both new and used cars have soared throughout 2021.

A worldwide shortage of microchips and other supply chain struggles have forced automakers to cut the number of cars they produce. Virtually every automaker has idled factories at some point in 2021 because of a shortage of necessary parts.

Most have used the microchips they can get to produce high-margin SUVs and pickup trucks. Forced to cut something, they’ve built fewer affordable small cars.

Meanwhile, Americans, enjoying an economic recovery from the worst days of the COVID-19 pandemic, have gone back to car shopping.

The result? In October, the average new car in America sold for $46,036 – an increase of more than $5,000 over prices from just one year before.

Used Cars in Short Supply, Too

Used car prices have been on a similar climb.

High prices sent some new car shoppers into the used market instead. Meanwhile, a lull in car production after the 2008 recession left dealerships with few of the higher-mileage, older used cars they usually sell for under $10,000.

The average used vehicle list price at the end of September was $26,646 – 25% higher than September 2020. October’s numbers aren’t yet available.

Dealers Have Fewer Cars on Hand, But They’re Selling More of Them

Though dealers have fewer cars on the lot, NADA reports that they’re selling more of them than in 2020.

Through September, the average number of new vehicles sold was 16% higher than 2020 numbers. Average per-vehicle gross profit for new cars was up 65%. Used vehicle sales were 9.4% higher than 2020 numbers at the average dealership. The average per-vehicle profit on used cars was up 36%.

Little Relief in Sight for Car Shoppers

In a normal year, we’d be telling you that prices are headed down soon. The end of the year is usually the best time to find a bargain on a new car. Dealerships are often motivated to sell at a discount to help pump up their annual sales numbers as the finish line approaches. And, in December, they’re typically looking to clear out cars from the last model year before the calendar changes over and makes them look outdated.

But there’s little reason to believe those factors will apply to the 2021 holiday season. Our research shows that some shoppers are now delaying a new car purchase, hoping to wait out high prices. Some experts predict that the microchip shortage could stretch into late 2022.


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