Selling Like Hotcakes: New Cars And Trucks, And The Dealerships That Sell Them, Too

Auto dealers are knocking on wood, but so far, nothing much seems to be making a dent in the current streak of record profits for U.S. auto dealerships, or the appetite that growing dealership chains have for acquiring even more dealerships.

“Retailers have not been hurt by recent economic headwinds such as higher interest rates, higher gas prices, higher inflation and declining GDP, demonstrating the strength of the auto retail business model,” said the latest Haig Report.

Haig Partners LLC, Fort Lauderdale, Fla., is a firm that brokers dealership acquisitions, called “buy-sells” in the auto retail trade.

“The first quarter of 2022 may bring auto dealers their highest profits ever,” said Alan Haig, president of Haig Partners, in the recently published Haig Report for the first quarter of 2022. “This is a uniquely good time to be an auto dealer.”

Countering all those economic headwinds is an ongoing shortage of new vehicles, largely because of a shortage of computer chips used in modern cars to manage electronic features and options.

And before the chip shortage, which started to seriously limit new-vehicle production over a year ago, there were pandemic-related shutdowns in the spring of 2020, which stopped new-vehicle production entirely, followed by a slow ramp-up.

The combination of low supply and high demand has driven new-vehicle transaction prices to record or near-record levels. According to TrueCar, the average transaction price in May is projected to be $44,254, up 14% vs. a year ago and about even with April 2022.

These high retail prices and high dealership profits have made car dealerships a hot commodity. Haig Partners estimates a record 640 U.S. dealerships were bought and sold in 2021, vs. 344 in 2020.

What’s more, high prices are projected to continue for the next couple of years, even assuming the chip shortage begins to ease, because it’s going to take that long for supply to catch up with demand.