AutoNation CEO says that the business model going forward will maintain high asking prices.
The new car market has been in disarray ever since the supply chain of parts, particularly semiconductors, has been under strain due to the pandemic. As a result, manufacturers are struggling to meet customer demands, be it a Ford Bronco or Chevrolet Corvette. Some patient individuals have it in mind that it would be better to ride the wave and purchase their favorite car once things have smoothened out and discounts are reintroduced for stock that has not been sold.
If you are one of these people, you may be disappointed to hear that this could be a waste of time as a recent quote from AutoNation CEO Mike Manley suggests that dealerships have no intention of lowering the price of its products. Ever.
Speaking to investors during an earnings call last week, former CEO of FCA, Manley said, "We will not return to excessively high inventory levels that depress new-vehicle margins. Significant discounting and high incentives can also damage a brand, which is another reason for our industry to balance appropriately supply and demand."
For the sake of profits, this can be seen as a more logical decision as you only produce the necessary amount of cars that are in demand. Companies could do this by incorporating an order-only strategy that ensures that bulk stock can never be an issue. There is a case of vehicles returning to the floor if financing falls through, but as we saw with a recent incident involving a sought-after Bronco, stock is usually snapped up promptly.
Unfortunately, what these quotes do not address is the markup crisis that has been putting customers of various manufacturers at a disadvantage. With dealerships taking note of the high demand and short supply, the price of some cars is being inflated by as much as 100%. Companies such as Ford are trying to curb this by issuing warnings to dealerships and threatening to restrict stock if unwarranted markups are applied to its products.
The current situation has been favorable for AutoNation, who recorded profits in its last set of quarterly earnings while confirming that only two percent of its sales were above MSRP. As a result, it is motivated to ensure that the higher prices attached to vehicles are maintained long after the pandemic comes to an end and the supply of vehicles returns to its standard production speed.