Despite Limited Inventory & High Cost of Business, U.S. Auto Dealers Are Raking in Profits in 2022

Limited new vehicle inventory and the economy are top concerns for U.S. auto dealers this quarter—but the profit index remains strong.
Written by R.E. Fulton
Reviewed by Kathleen Flear
COVID-19 no longer ranks in the top five concerns held by auto dealers. Instead, low inventory and inflation are taking center stage, according to the Cox Automotive Dealer Sentiment Index (CADSI) for the second quarter of 2022. 
As the automotive industry emerges from the COVID-19 pandemic, independent and franchised dealers are facing new challenges. But despite a slew of new difficulties, the profit index for U.S. dealerships remains stronger than at any time before 2020. 
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The cost of running a car dealership is higher than ever—but so are profits

One important measure of dealer sentiment is the cost index, which gauges the overall cost of running a car dealership.
The latest CADSI report indicated
that number increased by 11 points over the past year to an all-time high of 76. Compare that to 2020’s record low of 54, and it’s clear that dealership costs are climbing fast. 
What’s making business so expensive? Just like everyone, dealers are feeling the pinch of inflation, coupled with serious supply-chain problems leading to limited inventory—which dealers in the survey listed as their No. 1 concern
The other things on U.S. dealers’ minds this quarter were the economy, which took the No. 2 spot behind inventory headaches, as well as market conditions, expenses, and the political climate. 
But for the first time since the pandemic, dealers indicated that COVID-19 was not a top factor negatively impacting business—it came in at No. 7. 
Despite all these challenges, the profit index saw only a one-point decline and remained higher than at any time before the start of the pandemic. The profit index for franchised dealers is particularly robust, sitting at 82 compared to the dwindling 44-point profit index reported by independent dealerships. 

Despite economic challenges, dealers don’t feel pressure to lower prices

Although U.S. auto dealers are less optimistic about the future of their business than in previous years, few dealers are feeling pressure to lower their prices to adjust to economic conditions. The price pressure index increased by four points between Q1 and Q2, but it remains under 50 at 41 points. 
In fact, dealers’ view of new vehicle sales has improved slightly, despite tight inventories. At the same time, low inventory, along with diminished incentives and discounts, mean that many potential buyers are discouraged from purchasing new vehicles right now.
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