While the 20s have posed numerous evolving challenges to the auto industry, from rapid digitalization due to COVID-19 to ongoing inventory challenges, auto dealers have proven to be more than capable of adapting to whatever is thrown their way.
Throughout the first quarter of 2022, auto dealers demonstrated incredible resilience and efficiency despite new vehicle inventory shortages, achieving one of their best quarters in recent years.
In this blog post, we’ll explore what’s happened so far in 2022 and what will likely happen next in the auto dealership industry including the:
· Q1 State of the Automotive Industry
· Impact on Auto Sales & Buying Trends
· Expectations for the Remainder of 2022
Q1 State of the Auto Industry
Dealership Inventory Outlook
New vehicle inventory challenges persisted globally throughout Q1 due to production delays, COVID-19 related shut downs and global supply chain disruptions. IHS Markit, now part of S&P Global, is to reduce their 2022 North American vehicle production forecast in March by 3.6%, or 480,454 units.
In reality, actual production for Q1 2022 came in a bit higher than initially forecasted at 3.55 million units produced, according to new forecasts. But looking ahead to Q2, S&P Global reduced its forecast slightly due to continued supply chain struggles and additional logistical concerns. These include the surrounding border crossings between the U.S. and Mexico in Texas which could exacerbate already strained conditions in the near-term.
Slowing New Vehicle Sales
Still, sales fell across the three months as new vehicle production continued to be limited. According to NADA, March 2022’s SAAR totaled 13.3 million units, down from 14 million units in February and 24.4% from last March’s SAAR of 17.6 million.
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Impact on Auto Sales & Buying Trends
Dwindling OEM Incentives
With fewer vehicles on the lot and sales still relatively strong, OEMs have continued to cut their average incentive spending. According to J.D. Power, average incentive spending per unit fell to an all-time low of $1,044 in March 2022, down 68.7% from last March’s overall incentives, driving vehicle prices to new heights.
Transaction Prices Increase
As a result of decreased OEM incentives and consistent consumer demand, dealers continued to see transaction prices and monthly payments increase in Q1. According to J.D. Power, average transaction prices achieved a March record of $43,737 in 2022 up 17.4% compared with a year ago.
Similarly, the average monthly payment for new vehicles jumped to $658 in March, according to the same report, an increase of 12.4% over last year. However, compared to transaction prices, this growth has been offset slightly due to elevated trade-in values which skyrocketed 81.3% year-over-year due to inventory constraints.
Diminished Customer Loyalty
Weighing high equity with high prices, few incentives and limited choices on the dealership lot, customers are increasingly likely to switch dealers or even brands to find the vehicle of their choice.
In March, S&P Global reported there was a strong correlation between days’ supply and make loyalty as customers returning to market increasingly defected brands amid ongoing shortages. This follows the same trend as earlier reports, with brand loyalty falling to six-year low in 2021 while body style loyalty increased during the same period.
Expectations for the Remainder of 2022
Vehicle Production Slowly Improving
While the last two years have taught dealers to always expect the unexpected, the remainder of 2022 is projected to be relatively consistent with the auto industry’s current status quo, at least in North America.
While global light vehicle forecasts were downgraded in March due to evolving challenges overseas, North American projections remain flat at just under 15 million units, according to S&P Global.
Sales Still Bound by Production
Looking towards the future of car sales, transactions will continue to be driven by availability throughout the rest of the year, resulting in similarly flat sales projections for 2022.
“For the rest of the year, new-vehicle sales will be limited by the number of vehicles OEMs can build,” wrote NADA in their April sales report. From January through April, NADA’s new light vehicle sales forecast has remained unchanged at 15.4 million units.
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Despite supply chain disruptions and inventory shortages continually challenging the automotive industry in recent years, Q1 demonstrated some early signs that stabilization is on the horizon.
While auto dealers have proven to be incredibly resilient so far, it’s still critical to maintain that momentum in the months ahead, especially as some uncertainties still remain.