From pivoting to digital retail to inventory and chip shortages, the pandemic played a key role in what retail automotive looks like today. On this edition of Inside Automotive, we’re joined by Bloomberg Intelligence’s Senior Automotive Analyst, Kevin Tynan, to get his take on where the auto industry stands.
When you look at transaction prices overall, relative to MSRP, historically the average has been discounted by 6.5%. This means, a customer could walk into the dealership, and knock around $2,500 off the price and they would have a deal. As inventory got thinner due to supply chain constraints, prices start to sneak up closer to MSRP pricing. Tynan says the premium over sticker is about $140 across the board.
Transaction prices today are at a record high. This has caused discounts to be zero or even negative. The average in the U.S. is trending towards $45,000 plus. Tynan says there are no more cars pulling down your average transaction price but also selling them profitably.
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Tynan believes the reason why pricing is firm, is because it eliminates the need for oversupply. He also says, if the manufacturer supply balance is tight, and margins are good, he believes the same will happen at the dealership level. If there is discipline, Tynan thinks that the influence and the size of manufacturing, through the retail channel, is what determines the future. It’s not necessarily the pull of the consumer.
Tynan elaborates that the higher costs have been rationalized in a way greater than the 08′ recession. For the manufacturers, the worst possible thing they can do is cut production. A lot of those costs are out of the system. Tynan says processes have to be leaner and more efficient. Manufacturers are car dealers alike will have to learn to do more with less.
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