The largest car dealership chain in the U.S. said discounts on new cars may be a thing of the past as the auto industry seeks to lock in higher prices resulting from pandemic-induced production cuts.
Tighter inventories have allowed automakers and dealers to book fat profits by selling more cars at or above their sticker prices, and the absence of discounts will persist even as vehicle production ramps up in the second half of 2022, the chief executive officer of AutoNation told investors in an earnings call Thursday.
“We will not return to excessively high inventory levels that depress new-vehicle margins,” AutoNation CEO Mike Manley said. “Significant discounting and high incentives can also damage a brand, which is another reason for our industry to balance appropriately supply and demand.”
Soaring vehicle prices and increased sales of used cars helped AutoNation post record profits in its latest quarterly earnings, which were announced earlier Thursday. The rising prices of new and used vehicles are contributing to the highest annual inflation in four decades.
Read more: AutoNation profit at record as used-car sales eclipse new
Executives at General Motors Co. and Ford Motor Co. have signaled they will throttle production even as computer chip shortages that have forced them to cut output start to ease. The two companies, which have long coped with large inventories on dealer lots that prompted discounting, are eager to preserve their higher profit margins.
At the same time, they’ve called out car dealers charging above the suggested retail price. Ford CEO Jim Farley told investors earlier this month that about 10% of its dealers were charging above retail price, and that the company would withhold cars from them to root out the behavior.
Car shoppers paid above the manufacturer’s sticker price in more than 80% of new car purchases last month, according to researcher Edmunds. Manley said just 2% of new vehicles AutoNation sold in 2021 were above the sticker price.
–By Gabrielle Coppola (Bloomberg)
