September Sizzles With Record Dealer Profits

Greetings,

The final days of September are marked by declining prices for used cars, while new vehicle transactions are mainly on the upswing (record profits are nothing to complain about, either). At the same time, Porsche’s IPO finally hits the market, which should turn into a spectator sport for the initial trading days.

We’ve included an update on how Jaguar Land Rover is preparing for its EV future and highlighted a look at the diminished but still surviving world of manufacturer incentives.

Cheers!

Market At A Glance

Explore the CarGurus used car index for more details, but we can tell you that the average transaction price for a pre-owned vehicle dropped by $179 in a week. That’s the most significant decline since we started covering this information. How are your numbers holding up in this area?

Breaking Headlines

• Used cars have become unaffordable - CNN

• Toyota, Ford, BWM, Porsche top 2022 J.D. Power U.S. automotive brand loyalty study - CBTNews

• GM car sales nearly double - KBB

• At car lots, the best deal may be the real estate - NYT

• US light-vehicle sales expected to stagnate with pent-up demand disappearing - Autonews

September New Car Sales Looking Up

The folks at J.D. Power and LMC Automotive did some number crunching (and perhaps some gazing into a crystal ball) to forecast that September will see a 5.4% increase in new car sales compared to last September. That’s a total of 958,948 units, which marks the 16th consecutive month of retail vehicle sales below one million.

The improvement comes despite a substantial rollback in automaker incentives (read the story below on this) and rising interest rates. But, a subtle increase in vehicle production (from some manufacturers) undoubtedly helped.

But the numbers head in a different direction when taking quarterly data into account. The report projects that Q3 2022 new car sales will decline 4.2% to 2,900,300 units from Q3 2021. It’s even more sobering with YTD Q3 2022 figures, as JD Power predicts new-vehicle retail sales will fall by 14.9% to 8,710,600 units against the same period last year (when adjusted for selling days).

Continuing the roller coaster ride that’s today’s car business, the report also dives into dealer profitability. Total per-unit profit (including retail grosses and F&I products) is expected to hit $4,726, basically unchanged from last year. But that notches up to $4,839 for Q3, a 10% gain over last year and a record-setter. At the same time, total aggregate retailer profits from September new car transactions are expected to reach $4.5 billion, a 5.3% jump from the same period last year. That’s the best September on record. And Q3 total aggregate profitability projections show a nearly identical 5.4% rise, which works out to $14.0 billion (another record).

Dealer Focus

• Data Breaches Can Cost Dealerships Millions in State Fines and Lawsuits - DealershipNews

• Acertus partners with NAIDA to serve indies - DealershipNews

• What the latest Fed interest rate hike means for auto dealers - CBTNews

• Survey finds 74% of participants prefer to buy EVs at dealerships - Autonews

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IPO Values Porsche at $73 Billion

The Porsche IPO has sprung to life as trading begins on the Frankfurt stock exchange. The offering values the legendary automaker at more than €75 billion, or about $73 billion. Initial targets had pegged the valuation in the $67.7 billion to $73 billion range, so pricing puts the now-public Porsche at the top of the estimates.

Porsche has become one of the most valuable automakers on the planet, easily exceeding Mercedes-Benz’s market capitalization of $58 billion and Ford Motor Company’s $49 billion, but still lagging behind parent VW’s $79 billion. Yet, all these companies have a ways to go to catch up to market leaders Toyota ($223 billion) and Tesla ($901 billion). Porsche’s offering is one of the largest ever made in Europe

On the first day of trading (September 29), 911 million Porsche shares opened at €84 ($81) each. The number of publicly traded shares (911 million) is a tribute to Porsche's iconic sports car.

Jaguar Retraining 29,000 Employees and Dealer Staff for an EV Future

It may seem like ancient history, but Jaguar Land Rover’s announcement about switching to all-electric vehicles by 2030 only took place last year. As a follow-up to this plan, the automaker released details on a drive to train 29,000 people for the changeover.

According to a statement issued earlier this week, the company intends to train 10,000 JLR and franchise dealer employees in the U.K. and 19,000 others globally. The automaker reports that about 80% of its 1,300 dealers worldwide service electric vehicles, so it will begin its efforts by training technicians over the next year. Ultimately, JLR intends to train 60% of company and dealer employees to “develop, manufacture and service modern luxury electric vehicles over the next three years.”

The Changing World of Incentives

A recent article from Cox Automotive/Kelley Blue Book explores the changing world of automakers’ retail incentives. We’re in a market where at least 70% of new car purchases are made at or above MSRP, and manufacturers are weaning themselves off these inducements.

KBB reports that in August 2022, incentives averaged 2.3% of the average transaction price, compared to 10.5% for August 2019. Industry-wide, that works out to $1.24 billion in August incentives against $6.51 billion in August 2019.

Supply chain issues and a subsequent nosediving of retail deliveries account for the steep decline. KBB data shows that dealers sold 1.65 million new cars in August 2019 versus 1.14 million in August 2022. That’s a decline of 510,000 units or almost 31%.

However, market share among several brands has remained stable (and increased, in Ford’s case). And while some incentives remain to boost slow sellers and offset increased financing costs, the days of mega offerings to consumers are long past.

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