New Car Sales Are Down, But Car Dealers Never Had It So Good

For dealerships, higher margins per vehicle have more than made up for the drop in new-vehicle volume due to the computer chip shortage, said Earl Hesterberg, president and CEO of Houston-based Group 1 Automotive, one of the nation’s biggest new-vehicle retail chains.

“Demand is extremely strong,” he said, in a conference call on April 27 to announce first-quarter earnings. “We sell most units almost immediately after manufacturer delivery.”

Thomas King, president of the data and analytics division at J.D. Power, said at the recent New York Auto Forum that 2022 is shaping up to be, “Hands-down, the most profitable year ever for retail dealerships.”

The forum was hosted by J.D. Power, the National Automobile Dealers Association, and the Greater New York Automobile Dealers Association, in conjunction with the New York International Automobile Show.

Group 1, for instance, said that in the first quarter, new-vehicle gross profit per retail unit more than doubled compared with the first quarter of 2021, to an average of $5,479. New-vehicle volume was down 14.2% on a same-store basis. Total revenues for Group 1 were up 11%, to $3.2 billion, also on a same-store basis.

Most automakers in the U.S. market report auto sales volume only once a quarter. For those automakers that do provide monthly sales data, those reports are due May 3, according to Motor Intelligence.

Forecasters expect sales to fall around 20% in April 2022 vs. April 2021, but that’s because new vehicles are in short supply relative to high demand, and not for any lack of demand. So far, the resulting record-high transaction prices don’t seem to be turning customers off, dealers said.

Besides the new-vehicle shortage, the switch in consumer preferences to SUVs, crossovers, and pickups is also driving up the average price. On average, trucks are bigger and more expensive than passenger cars.

Hesterberg says high prices might stifle demand someday, but it’s still a far-off threat for most new-car buyers, since most new-car buyers have good credit histories. Logically, affordability is a bigger hurdle for buyers with the riskiest subprime credit — especially with rising interest rates, he said.

“That’s a very price-sensitive, interest-sensitive market, but we’re not really in that market,” Hesterberg said.