Car dealers increasingly worried about the economy

Though new-vehicle supply has modestly improved, supplies haven’t recovered to the degree dealers are seeking, the survey results showed.

About 71 percent of respondents said new-vehicle inventory levels for the brands they represent are not back in line with demand. Several respondents individually noted the model mix they’re getting is off or doesn’t align with the market.

Germain’s Farkas estimated that better new-vehicle sales, helped by increased production for the Honda brand, will deliver a 6 percent increase to his dealership’s bottom line in 2023.

“I believe production is going to pick up,” Farkas said. “I don’t think it’s going to be at the same level that the manufacturer’s suggesting at this point, but I do see an increase.”

As new-vehicle supply has improved, it’s clear that dealerships have begun to pull back on the markups over sticker price that have been persistent the last couple of years. One-quarter of respondents to the 2023 survey said they continue to charge markups, with the most common percentage increase over sticker being 5 percent or less. In the 2022 survey, 38 percent of respondents said they were marking up, with the most common percentage increase ranging from 6 to 10 percent over sticker. 

Nearly half of 2023 survey respondents said they expect inventory availability to be back in line with demand sometime in 2024. Nearly a quarter are expecting that to happen by the end of this year. 

Used-vehicle inventory will remain hard to get, too, said Ted Marshall, dealer principal of Marshall Ford in Philadelphia, Miss. 

It’s more difficult to buy and retail used vehicles, not only because supply is limited, but also because vehicles with reasonable acquisition prices are hard to find, Marshall said. He noted his dealership is carrying some used vehicles in inventory that were purchased at wholesale for more than their likely current retail prices.

“We’re selling [used] vehicles for some losses and also taking huge losses if we go to auction,” he said. 

With cost pressure up and profit concerns rising, some dealers are exploring how to improve their operating efficiency, said Stephen Dietrich, a partner with the Holland & Knight law firm in Denver. He said his dealer clients are examining all costs as they enter 2023 and are being careful about what they spend for. 

“They’re not tightening the belt,” Dietrich said, “but they’re saying we’re going to watch the belt.” 

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