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What Dealerships Can Look Forward to in 2022

What Dealerships Can Look Forward to in 2022

Between stay-at-home orders in 2020 and inventory (and chip) shortages in 2021, the car buying experience has shifted over the past two years. Dealers are finding new and used cars harder to come by, and prices for both have increased as lots have emptied.

The Cox Automotive Dealer Sentiment Index (CADSI) for the fourth quarter of 2021 reveals many dealers feel the automotive market is still strong, despite a decrease in overall new vehicle sales. CADSI reported a score of 45 for new vehicle sales, which is only the third time the number has fallen below 50 since the survey launched. On the other hand, most dealers see used vehicle sales as “good.” This assessment is fueled by less pressure to lower prices or “deal” on vehicles as inventory remains low.

While dealership management can look back and see where their business has been, looking forward will help make business decisions about the new year.

2022 trends in car dealerships

Some of the major themes of 2021 will continue to be a source of concern for dealers in 2022. Additionally, new topics are sprouting, and old topics are being revived in light of new and upcoming legislation.

Inventory shortages: According to CADSI, dealers are more optimistic about spring inventory levels compared to their view from the year prior. However, the survey shows concern about rising wholesale vehicles and labor costs.

Technician shortages: Higher labor costs may be compressing margins for dealers. With fewer technicians in the market, the cost of hiring and retaining employees goes up. The shortages in the labor market also make it easier for unhappy employees to switch to another company.

Electrification of vehicles: The introduction of Tesla Motors drove the demand for electric vehicles up to approximately 7-9% of the market. That number is expected to rise to 30% by 2030. In addition to more auto manufacturers offering fully electric options, the recently passed Infrastructure Investment and Jobs Act commits $7.5 billion to build a national network of electric vehicle charging stations along highway corridors and within communities. Wider availability of charging stations is expected to offset “range anxiety” – a common barrier for switching to fully electric vehicles.

Build Back Better Plan: The Build Back Better Plan has been passed in the House of Representatives and is awaiting a vote in the Senate. The $1.75 trillion plan is expected to include a tax credit for union-built electric vehicles and continue to push forward the switch from traditional combustion engines that use gas as the primary fuel source.

Auto-buying journey: With information becoming more readily accessible, consumers are more informed and more adept at demanding transparency in the purchasing process. The buying journey has become more varied, with different buyers wanting different experiences, from a fully online experience to a purchasing decision that ends in the dealership. Larger dealership networks, including “mega dealers,” have taken advantage of economies of scale to decrease operating costs and increase wholesale discounts from manufacturers. This gives them more freedom to discount prices and focus on new ways to get their brand in front of potential customers.

Infrastructure Investment and Jobs Act: In addition to the electric vehicle charging station mentioned above, the IIJA created deadlines for the Department of Transportation to implement rules for manufacturers that include, but are not limited to, installing automatic shutoff features for keyless ignition systems, updating headlamp standards, and equipping newly manufactured vehicles with technology to prevent drunken and impaired driving.

Please contact John Comunale via our online contact form for more information.

Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.