If you run or work in a car dealership you know that inventory levels have essentially turned this business on its head for the last year. With chip shortages causing major manufacturing delays in 2021, this has trickled down to cause delays in just about everything in the automotive world. Dealers are working with 25% of their normal new car inventory levels typically (sometimes even lower) and are selling at rates far under what they did in years prior. The good news is that due to demand new car profits have been great, but dealers are still eager for inventory to return to pre-shortage levels. So, here’s a look into what we at D2D are seeing from dealers around the country to give you an outlook on inventory for 2022.
Here’s What We Know
For at least the past eight months, most dealerships have been selling in-transit vehicles so that when a shipment does arrive, it’s 90% sold already and sometimes the whole shipment is pre-sold. The shipments were typically delayed past the expected arrival date up to two months at times. We have seen a slight shift over the last 60 days where inventory shipments seem to be more reliable and include more vehicles. Whereas most dealerships were getting 10-20 vehicles per shipment previously, it seems the shipments are about doubling (or a little more) in size in addition to being more on time. This is great news for dealers, but it still doesn’t put them near where they were with inventory.
With this slight delivery shift we have also seen a small drop in pre-owned sales. While there are some exceptions, of course, it seem that on average used car sales have dropped 10-25% per rooftop in the last 60 days. We can speculate on what this might mean in the next section of this blog.
Demand is still very high. Even with this small but promising bump in inventory, demand is still very high and new vehicles are still selling in-transit or very shortly after landing on the lot. Whether this is simply a case of consumers wanting what they “can’t” have, or the fact that demand has been so backed up it’s going to take a bit of time to level out, we are not sure. It’s very likely a combination of both!
Here’s What We Don’t Know
As an automotive digital marketing agency, we are fortunate enough to be able to talk to dealers and dealership managers across the country about what they are experiencing, there are some pieces none of us know. So, here’s where we speculate a little.
Initially we were sure that inventory levels wouldn’t go back to normal until the end of 2022. Then we saw that small bump in increased deliveries. Then we had a surge of Covid cases thanks to the Omicron variant. So, where does that leave us? This newest surge in cases could put plants even further behind with what seems to be an inevitable sweep through most companies and factories putting out large portions of staff at a time. However, this variant thankfully seems less severe and for the most part people are able to return to work fairly quickly. This could keep projections mostly on track. We are thinking we could start to see the light of the inventory tunnel over the summer.
What does this mean for gross profit? If you’ve been watching or calculating your dealership’s gross profit over the past year you know what that looks like in comparison to other years. If inventory levels rise, will demand go down and take the profits with it? We think it could certainly impact a percentage of the newfound profit of selling new cars. However, we think making more money is here to stay for a while.
With consumers unable to find the new cars they want, they have been turning towards CPO and pre-owned if they need a vehicle. However, a direct time correlation can be made with the slight increase in inventory and the decrease in used car sales. So, what we can gather here is that people believe inventory is going to come back up in the next few months and could be holding off on making that pre-owned purchase.
What have you seen in your dealership(s)? Do your speculations align with ours? We’d love to hear from you. If you need some help diving back into new car advertising or ramping up used car marketing, contact us today online or call us at 877-958-4524.
Christine has spent the last 13 years strategizing, executing, and optimizing digital campaigns. She is certified in a variety of digital tactics including SEO, SEM, Social Media, Display Advertising, Email Marketing and Mobile Advertising and has been published several times on PRDaily.com. She has hosted digital trainings, been a guest lecturer for Graduate classes, and has spoken at the Digital Dealer conference. Outside of the office, Christine is a roller derby coach and also teaches Digital Marketing at William Paterson University.
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