Some experts say deals on new cars are a thing of the past

by mcardinal

Marion Bae, FISM News


Many Americans have been waiting for prices to go back to pre-pandemic rates, as the country faces record high inflation, but recent reports suggest that bargain automobile shopping may be a thing of the past. 

Recent statements from AutoNation CEO Michael Manley and others suggest that the deals we used to see at the dealership may be a thing of the past, due to the lessons learned by the car manufacturing industry during the COVID-19 lockdowns. 

As we’re just starting to loosen pandemic era restrictions, during which production stalled and new cars were harder to come by, AutoNation CFO Joe Lower announced during a call with investors last Thursday that the company saw a “total revenue of $6.6 billion, an increase of 14% year over year,” in the fourth quarter of 2021. 

Manley assured investors that based on his assessment, “We will not return to the excessively high inventory levels that depressed new vehicle margins.” 

He also addressed concerns surrounding pricing above the Manufacturer Suggested Retail Price, “…we’ve seen a number of comments about vehicles being sold above MSRP, quoting the potential adverse impacts on brands and customers, which I understand…But this discussion on MSRP branded customers actually also adds to my optimism regarding new vehicle margins going forward.” 

I think it’s equally clear that significant discounting and high incentives can also damage a brand, which is another reason for our industry to balance appropriately supply and demand, and another reason why we may expect higher new vehicle margins than we have historically seen pre-COVID.

Bloomberg conducted a subsequent interview with Manley, during which he said, “What we’ve had to do is create efficiency and productivity in a different way, and we’re very confident that that will survive beyond the pandemic.”

He added, “But when I step back, what we’re really doing is selling new vehicles around MSRP.  I mean that’s what we were supposed to do. So what the pandemic actually did was press a reset button on the balance of inventory.”

“Now the key question is, are we going to take the lessons, are we going to take advantage of that reset button that’s been pressed and … keep the balance we need to maintain good new car pricing?”

Manley told investors and Bloomberg that less than 2% of the new cars sold at AutoNation last year were sold above MSRP, while the majority were sold at or below MSRP.

This wasn’t the case across the industry, however, as put out shocking data this month, stating that buyers paid over MSRP 82.2% of the time in January 2022, compared to just 2.8% in January 2021.

Manufacturers like Ford are trying to take steps to mitigate this, with Ford CEO Jim Farley noting in his recent investor call, “We have about 10% of our dealers last year in the supply constrained environment that we’re charging above MSRP to the best of our knowledge. We have very good knowledge of who they are. And their future allocation of product will be directly impacted because of that policy.”

Where the industry will go from here is yet to be determined, but the increased new car prices seem to be sticking with us as we come out of the pandemic.