Dealers are increasingly worried about the economy and the possibility of recession even as improving inventory levels have them more optimistic about the new-vehicle business in 2023.
Dealership executives who answered Automotive News’ 2023 Dealer Outlook Survey say economic conditions that took root in the last year have caused their concerns about maintaining profits to grow. Several now believe rising interest rates and a potential recession, on top of intensifying vehicle affordability challenges, could ultimately disrupt their business this year.
“We’re in an affordability crisis,” said Patrick DiCesare, dealer principal of Eastside Volkswagen in Willoughby Hills, Ohio, a suburb of Cleveland.
Eastside Volkswagen’s customers are largely driven by budget and payments and have historically gravitated to the leasing market, DiCesare told Automotive News. But with some lease payments up 50 percent for the same product compared with years past, customer demand is cooling, he said.
The 264 dealers and dealership managers who answered Automotive News’ survey in January have mixed outlooks. One-third of respondents said they expect their dealership’s overall performance to worsen in 2023, with the rest expecting performance will be similar to or better than last year. About 44 percent of respondents said they believe their profits will worsen in 2023, while nearly 30 percent expect profits will be flat compared with 2022, a year in which some said their stores recorded record profitability. By contrast, just a quarter of respondents to the 2022 survey said they expected profits to improve.
Dealerships generally have enjoyed three straight years of record profits since the onset of the coronavirus pandemic, though clear metrics are no longer available from the National Automobile Dealers Association, which has long tracked the financial performance of the average U.S. dealership. NADA stopped publicly releasing that data in late 2021. Up until then, the numbers had shown the average dealership setting record profit in 2020 and again in 2021, though the 12-month number for the latter year — $4.1 million in pretax profit for the average franchised store — had to be estimated after NADA reported data only through October. Profits for many dealership groups increased again in 2022, according to anecdotal reports by dealers, though it’s not clear how the profit picture changed for the average store.