Editorial: Chasing share in today's market is a fool's errand

It was hard to leave the NADA Show in Las Vegas this month without feeling that the self-discipline and record profitability retailers and automakers have enjoyed for the last three-plus years are probably coming to an end.

Just add up the aggressive volume plans dealers heard about in their make meetings. Either the U.S. market will explode to record sales levels in 2024, or — as is more likely — automakers chasing market share will push up inventories and flood the market with profit-draining incentives.

At its Auto Summit in Las Vegas, J.D. Power predicted sales would reach 16.1 million vehicles in 2024. That would be up from 15.6 million in 2023, according to the Automotive News Research & Data Center. J.D. Power said average transaction prices would fall to $44,900 this year from $46,000 in 2023. However, it also predicted per-vehicle incentive spends would rise to $3,200 in 2024 from an average of $1,900 at the end of last year, and that subsequent dealer gross and finance and insurance profits would fall to $2,100 this year from $3,300 per vehicle at the end of 2023.

What does all that mean? In short, the executive proclamations in 2021 and 2022 about "discovering inventory discipline" and a "new normal" of matching production to demand looks to have been just happy talk. With remaining production constraints lifting, automakers appear hellbent on reverting to their historical mean — a fact that should concern franchised auto dealers.

Market share, as opposed to volume, has always been a cruel metric by which to measure success or failure. It can't collectively exceed 100 percent, so every incremental gain won by one automaker is lost by another. It also tends to be driven more by executive egos than are more straightforward volume-centric measurements, a fact that regularly leads those executives to sacrifice improved profitability to chase the percentage of a market they believe their products deserve to win.

It can be difficult for dealers to say no to the factory when its representatives want them to keep ordering, especially when consumer demand remains relatively strong. But if automakers lack the discipline to keep inventories down and profits up, dealers must be prepared to do so on their own — even at the expense of the occasional lost sale or declining market share.

It's worth remembering: Dealers are not in business to sell cars, they are in business to make money.

And making money is far more difficult when a factory partner is chasing market share.