The industry has bounced back from COVID-prompted downturns. An industry expert predicts the best is yet to come.
NEW YORK – Pent-up consumer demand, disposable savings and new models that hit the right notes with buyers are among the reasons industry expert Thomas King says dealers and OEMs likely have moved into what he expects to be their most profitable years ever.
King, president-data and analytics and chief product officer, J.D. Power, pushes aside supply chain and production shortcomings that some have characterized as ushering in bleak times for automotive players and consumers.
“I wouldn’t characterize any of this as bleak,” King tells Wards. “This is going to be the most profitable year ever. The only question is how much of a record there is going to be. Consumers aren’t hiccupping. They have big savings, their trade-ins are worth a lot and interest rates are low. The only question is how long this will last.”
King (pictured, below left) spoke at the Automotive Forum “Shaping The Future of the Automotive Market,” presented by J.D. Power, NADA and the New York International Auto Show. King and several other speakers underscored how dealers and OEMs quickly shifted their processes to serve customers better when COVID hit and chip shortages bloomed.
“That’s not unusual for many new products,” King says. “It’s well known that there are long waiting lists for Tesla. There are multiple vehicles with such long wait lists for premium cars. For the dealers, that’s great. They don’t have to carry inventory but still have those sales. That’s terrific.”
To underscore the success of such shifts, King shows industry sales performance that peaked at an annual rate of 17.3 million in March 2019, followed by a rollercoaster of ups and downs until settling at the current annual rate of 13.4 million in March 2022. As inventory grows, dealers and OEMs can expect profits to follow suit, he says.Still, it’s important to remember that performance varies significantly by region and will continue to do so, even as inventory increases. King notes that OEM employees flood the Detroit area. That population receives employer-offered discounts and incentives that impact the profitability of dealers. By contrast, retail new-car profits boom throughout the Southeast, where such incentives are generally not available.
Used-car values also impact the higher prices of new cars. King recalled a 6-month-old Mercedes Benz G Wagon with low mileage that he saw on sale for $250,000. The downside of such prices for used vehicles is that it shuts out lower-level buyers, at least for now.
King expects used-car prices to soften as the new product mix becomes more diverse. For now, though, King tells Wards the secondary market is experiencing a “financially extraordinary year.”
“The industry has undergone multiple big changes,” he says. “A lot of it came about because of COVID. And we have different products like EVs. There is no precedent for this environment. That’s why it’s so important to really pay attention.”
Keyword: J.D. Power Predicts Profitable Years Ahead