Automakers and car dealerships are making hay while the sun is shining, meaning they are charging maximum value to take advantage of the transitority and relative scarcity of new and used vehicles.
The source of new cars is relatively limited, as customer demand recovered faster than car production after coronavirus-related closures this quarter.
New-style used cars are also rare, as with declining sales of new vehicles, there are fewer embargoes and fewer rental returns, as many consumers cling to their cars and vans.
In addition, customer demand for used cars did not decrease as much as demand for new cars during the pandemic, as customers have become more aware of tariffs. Ironically, this supports higher charges for used parts.
“Many other people are looking, and there are many available,” said Nick Woolard, Director of Analysis and Affinity for OEM Partners on the TrueCar grocery shopping website.
In one study, TrueCar recently classified the cars and used trucks indexed on its online page through rarity, measured through the number of researchers compared to the actions indexed on its online page. Some high-end sports cars, the Nissan 350Z and Hyundai Genesis Coupe, topped the list, which you’d expect, but the Dodge Ram 1500 is also in the Top 5.
Of course, high demand and low source lead to higher prices, Woolard said in a phone interview. It’s smart for sellers, but so smart for buyers.
Publicly traded car dealership chains verify higher gross profits, in component due to urban mobility. AutoNation, the largest new car store in the U.S., said its stock of new cars dropped by 26,000 units, or 41%, at the end of the quarter compared to the same time last year.
Meanwhile, AutoNation reported that in its comparable store, the average gross variable margin consistent with the retail vehicle rose $585, or 16% for the quarter. “Limited source and a recovery in demand for profit margins from vehicles benefited this quarter. Looking ahead, we expect margins to normalize as inventories recover in the current part of the year,” said CFO Joe Lower.
At the same time, automakers have reduced unusually beneficial incentives that were not unusual in the spring, such as 0% financing for terms up to 84 months.
According to J.D. Power, incentive spending peaked in April with an average of about $5,000 consistent with the unit. In July, it was around $4,250.
Tyson Jominy, vice president of knowledge and analysis, said at a webinar organized through the Wall Street Journal that at the top, 12 automakers were lending 0%/84 months, just five in June.
Jominy said: “The news for consumers is that if you have an exchange, you’ll get more, too.”
I am a journalist with more than 25 years of experience writing and directing the automotive industry. After graduating from the University of North Carolina with a degree in journalism,
I am a journalist with more than 25 years of experience writing and directing the automotive industry. After graduating in journalism from the University of North Carolina-Chapel Hill, where I was a Morehead fellow, I started with the much-loved Nashville Banner, an evening newspaper. My speed included Saturn Corp. GM’s in Spring Hill, Tennessee, when the plant was still a hole in the ground, as well as Nissan’s giant plant nearby. This became an article in Automotive News, the leading advertising newspaper in the automotive industry, as a singles workplace in New York, covering European luxury brands, Wall Street, publicly traded broker groups, retail car financing, and monthly car sales. A four-year period as head of market research and corporate strategy at Mercedes-Benz USA gave me a privileged perspective. More recently, my independent assignments have included Advertising Age, Automotive News, AutoWeek, Bankrate.com, Businessweek.com, CBS Interactive, The Financialist through Credit Suisse, ForbesAutos.com and Forbes.com. I’m also the former editor of Auto Finance News in New York.