Lower Auto Prices Are On The Horizon.
With Mike Manley, CEO, AutoNation
AutoNation is the country’s largest dealership group with over 300 store sites nationwide and made $1.37 billion in net income last year, up 260% from 2020. Mike Manley, CEO of the Fort Lauderdale, Florida, company, stated recently that used car prices are starting to ease a bit, but he was less optimistic about new car prices supplies — without much real improvement until the second half of this year.
Mike Manley, CEO, AutoNation
New Vehicles Will Creep Downward
New vehicles are still scarce and prices remain high thanks to the semiconductor shortage which has forced all automakers to limit production. Here are a few comments by Manley regarding the state of automobile inventories, the chip shortage and prices.
The used-car market is punching downward
As used car prices skyrocket, with an average price of $29,000+, the average family who needs to replace an older car is looking at huge pricetags for good used vehicles.
Manley offered this regarding the $29,000 average used-car price: “They’re buying kind of a $20,000 used vehicle. From my point of view, if we do see an improvement in new-car supply in the second quarter and the third and fourth quarters, that mitigation we’re seeing on younger new vehicles will filter down. It will take some time. So I think you are going to begin to see good quality vehicles returning to market in areas that will attract those types of buyers.
Finding a good used car is trickier than it used to be
Manley’s remarks show how the industry is undergoing change. His advice to buyers looking for a $20,000 used vehicle? Buy now? Wait? “It is very beneficial for people to say, “Listen, this is the type of car that I’m looking for,” because we now have a system to make sure we track those things.” Manley said. “These cars are rare. They’re not unicorns. Obviously, the demand is higher than the supply, but there is supply. My recommendation is to come down to one of the dealerships. We’ll be transparent when we see something coming in.”
While Manley is hopeful about the future, he admits that it may be a longer road back to normal that we’d all like. “We’re not going to see an improvement in inventory levels in the first or second quarter, in my opinion,” said Manley, “I think what we may see is some improvement in supply in the second. But the vast majority of that now is pre-sold. It will take into the third and fourth quarter where I think we are going to begin to see some rebuilding of inventory.”
Pandemics change things
Gone may be the days of huge dealer lots packed with gleaming new vehicles. Plenty of colors, options, incentives — plus lower prices and sweet discounts. Will they ever return? It’s hard not to miss them in some sadistic way. Manley thinks that perhaps the industry, post COVID, had learned some valuable lessons. “It’s going to very much depend on how embedded are the learnings in the industry about keeping the balance between inventory and demand,” noted Manley, “Unfortunately, the pandemic, and none of us like that, but we’ve got that once-in-a-lifetime reset button. Now it’s down to: Are we going to make sure we take advantage of it, keep that discipline going forward? I think we are, because there’s enough embedded intelligence in the OEMs (automakers) and then the large dealer groups to say we really need to keep this balance going. It’s actually not a bad thing selling at sticker price, is it?”
Gone also may be the days of haggling over price. Manley doesn’t think we are going to return to the pre-pandemic 2017, 2018 (profit) margins,” said Manley, “What’s important really is your total cost of ownership. What you might get is a much better balance between what you’re paying on the front end and the residual you get when you come to trade or sell the vehicle.”
It used to be a lot simpler.