There is currently a serious challenge for auto dealerships, as rising auction prices and stagnant book values is leading to squeezed profit margins. On top of that, car sales departments are experiencing stagnent demand from consumers.
Supply and demand is being effected by a shortage of used vehicles in the market, which is driving up auction prices, while at the same time, the book values is not reflecting this increase reality, leading to a gap between the two prices. This could be due to factors like supply chain disruptions, production delays, or changes in consumer behavior.
Manheim (the world’s largest wholesale auto marketplace) is tracking auctions and distributing the data on sales and pricing. Indeed, auto dealers are paying more for cars, in some cases as much as 30% more. But these dealerships are running into problems selling those cars profitabily.
Without a doubt, inflation is impacting the cost of used vehicles and the purchasing of new automobiles. As the cost of raw materials, labor, transportation, and manufacturing increase, the cost of producing new vehicles goes up. This, in turn, can lead to an increase in the price of used vehicles as well. However, book values may not be adjusting for inflation, leading to the gap between auction prices and book values.
Electric cars are causing problems of their own in the automotive industry, from confusion regarding the Lithium Ion battery production and toxin issues to expensive models, simply unaffordable compared to non-electric cars and the decreasing price of oil.
There has been a shift in consumer preferences, whether this has led to a higher demand for certain types of used vehicles or not, is still to be evaluated.
There is an obvious trend towards SUVs and electric vehicles, and this is driving up the auction prices for these types of vehicles. However, if the book values are based on historical data that doesn’t reflect these shifts in consumer preferences, this may be leading to a gap between the two prices.
Auto dealerships are carefully analyzing their data and market trends to understand what’s driving the gap between auction prices and book values. Some are already trying to explore strategies like diversifying their inventory, negotiating better deals with suppliers, or adjusting their pricing strategies to adapt to these changing market conditions.
