Record Dealer Profits Suggest No Let-Up In High, New-Car Prices

Some of the nation’s biggest auto dealership groups continue to report record or near-record profits despite — or because of, really — the shortage of new cars and trucks.

What’s more, auto retailers don’t expect supplies to increase sharply any time soon, and that implies high new-vehicle prices are still here to stay.

New vehicles are in short supply, tied to a shortage of computer chips. That’s driving high new-vehicle prices, and as long as customer demand outstrips the available supply, there’s little motivation for dealers or automakers to offer generous discounts.

For instance, Asbury Automotive Group, Duluth, Ga. reported record third-quarter net income of $205 million, an increase of 39% vs. the third quarter of 2021. This, despite the fact that on a same-store basis Asbury’s dealership business segment sold 16% fewer new vehicles for the quarter, vs. a year ago.

David Hult, Asbury president and CEO, emphasized that Asbury’s record profits aren’t entirely a windfall due to the temporary situation where scarcity is driving up new-vehicle prices — although, he predicted that situation still has legs.

“We think margins are going to stay healthy through 2023,” he said in an earnings conference call for investors, analysts, and media.

Asbury reported its average selling price was $49,296 in the third quarter, up $3,684, or 8% vs. a year ago. Year to date, the average was $48,259, up $4,680, or 11%.

Meanwhile, Asbury has also invested a lot into its new, online business channel, ClickLane, which is expected to generate $1 billion in revenue this year. The group has also worked hard to control expenses. Profits are also up for its other business segments, too, like parts and service.

“We think we’re going to see extreme growth in parts and service,” Hult said, partly because customers on average are keeping their vehicles longer and need to maintain them.

Another dealership group, AutoNation Inc., Fort Lauderdale, Fla., separately reported strong third-quarter results.

Similar to Asbury, AutoNation’s third-quarter results also benefited from more than just higher average selling prices. AutoNation also enjoyed growth in its related businesses such as parts and service, said CEO Michael Manley.

“New-vehicle volume is really at a recessionary level,” in terms of volume, Manley said in a conference call.

He predicted new-vehicle inventory could start to catch up with customer demand, but not before next year.

Even then, Manley said he expects automakers to try and maintain some “discipline,” to avoid over-producing, and potentially depressing prices. He said, “I do believe you will see balance.”