According to the largest U.S. car dealership chain, discounts on new cars could be the future as the auto industry seeks higher prices due to pandemic-induced production cuts.
Automakers and dealers have made huge profits from selling more cars at sticker prices or lower than they are. The absence of discounts has allowed them to make big profits. This was the Chief Executive Officer of AutoNation, who spoke to investors during an earnings call on Thursday.
Mike Manley, CEO of AutoNation, stated that “We won’t return to excessively large inventory levels that depress new vehicle margins.” “Significant discounts and high incentives can also harm a brand. This is why our industry must balance supply and demand.
AutoNation’s latest quarterly earnings were announced Thursday. They reported record profits due to an increase in vehicle prices and increased sales. The highest annual inflation rate in 40 years is due to rising costs of used and new vehicles.
General Motors Co. and Ford Motor Co. executives have indicated that they will reduce production even though computer chip shortages have caused them to decrease output. Both companies have been able to manage large inventories at dealer lots, which has prompted discounting. They are keen to maintain their higher profit margins.
They also called out dealers who charge more than the suggested retail price. Jim Farley, Ford CEO, told investors this month that 10% of its dealers were charging more than the suggested retail price and that the company would take cars away from such dealers to stop the behavior.
Edmunds found that more than 80% (or more) of car buyers paid more than the sticker price for new cars last month. Manley stated that only 2% of the new cars AutoNation sold in 2021 were priced above the sticker price.