Independent Auto Dealers Continue to Face Pricing Pressures

The widespread distribution of the COVID-19 vaccine has breathed new life in the Atlanta area. As the number of new cases declines, consumers are starting to return to “pre-pandemic” activities. Concurrently, the easing of government restrictions has helped to jump-start hiring in many industries. With the end of the pandemic quickly approaching there is optimism abound. However, for independent auto dealerships, it appears inventory issues and increasing costs are key themes for why the industry is struggling. The Cox Automotive Dealership Sentiment Index for Q1 2021,  found that many dealers are focused on staying in business and new inventory acquisition. In fact, employee retention and workforce issues do not appear to be a significant concern. Despite current challenges, it appears most believe the rest of 2021 will result in improving business conditions. To help clients, prospects, and others, Wilson Lewis has provided a summary of key findings below.

About the Report

The survey was conducted between January 26 and February 7, 2021, and includes online responses from over 459 independent auto dealerships from across the country. Dealer responses were weighted by sales volume to be representative of the national dealer population. It is important to note that data is used to calculate an index (from 0 to 100) where a score of 50 or greater means more dealers view conditions as strong or positive and lower scores reflect the opposite sentiment.

Key Report Findings

• Factors Holding Business Back – Given the amount of change happening in the economy and in Washington DC, the report wanted to understand the top factors holding independent dealerships back. It was found that 48% of respondents identified business impact from the pandemic, 43% limited inventory, 40% market conditions, 26% consumer confidence, 25% increasing expenses, 21% credit availability for customers, 21% competition, 16% the weather and 6% consumer transparency in pricing.
• Top Business Priorities – Given the issues which are holding dealerships back, the report also wanted to understand the top business priorities for the coming months. It was found that 37% of respondents are focused on finding/buying new inventory, 26% staying in business in general, 8% improving sales/service solutions, 8% retaining customers, 7% expense reduction, 4% gaining market share and 1% retaining employees.
• Used Car Sales – The report wanted to understand the current used car sales environment and related issues such as inventory levels and used-vehicle inventory mix. It was discovered sales environment is still poor (rating of 40), inventory levels are low (rating of 37), and the used vehicle inventory mix is improving (rating of 51).
• Pricing Pressures – Since sales are still a challenge for many dealerships, the report wanted to understand pricing pressures. It was discovered that dealers are feeling increased pressure to lower prices (rating of 58). It is important to note, this is up over Q4 2020 (rating of 52) reflecting an almost neutral opinion on pricing pressures.
• Dealership Costs – The report also wanted to understand if costs of running a dealership have increased over the past three months. It was found that costs are growing (rating of 60) which represents a slight increase over the prior quarter (rating of 57).
• Dealership Profitability – It was also found that dealership profitability decline since Q4 of 2020 when it was already weak. According to the survey, respondents indicated that profitability continues to weaken (rating of 31) over the prior quarter (rating of 41). This is unwelcome news, but not surprising as independent dealers continue to manage low inventory and pressures to reduce prices.

Contact Us

It appears from the report that the impact of the pandemic, inventory issues, and rising costs are amongst the top challenges facing Atlanta area independent auto dealers. To maintain viability, these businesses should carefully review operations to identify efficiencies and other cost savings to weather the storm. If you have questions about the information outlined above or need assistance with an accounting, audit, or tax issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.