After a protracted inventory shortage, supplies of new vehicles at U.S. public dealership groups finally showed solid signs of improvement at the end of 2022. But there’s a catch.
The public groups reported meaningful gains in inventory, particularly for domestic-brand vehicles, but they also noted in fourth-quarter earnings calls over the last few weeks that luxury- and import-brand vehicles continued to be in dramatically short supply.
While retailers, automakers and industry analysts predict continued supply chain improvements and a broader return to normalcy in the coming months, new-vehicle inventory levels still have a long way to go to reach pre-pandemic numbers. Penske Automotive Group Inc. CEO Roger Penske, for example, noted this month that Penske’s inventory remains “way below our historical levels” despite the company’s recent gains in supply.
Here’s where the six major public dealership groups stood on supply at year-end.
New-vehicle supply at Lithia Motors Inc. rose to 47 days at the end of December, an improvement from 39 at the end of September and 24 at 2021’s year-end. Lithia’s days’ supply calculation includes in-transit vehicles and figures from its Canada operation.
Lithia executives foresee that improving supply will lead to more incentive activity from automakers in 2023.
“Our expectation now is that with this supply and demand equation moderating in 2023, based on product line, based on OEM, we’re going to see additional support that we haven’t seen the last couple of years [in] overall incentives, rebates, etc., that’ll help us moderate the impact that we feel in 2023,” Lithia COO Chris Holzshu said last week.
Lithia CEO Bryan DeBoer said new-vehicle inventory is rebuilding “but at a less uniform rate and varied by” automaker.
Lithia CFO Tina Miller said she expects Lithia’s average new-vehicle gross profit will continue to moderate this year as supply and demand trend back toward pre-pandemic levels. Miller said an assumed decline of $200 in that metric for each month throughout the year would move Lithia’s average to around $3,800 by the end of 2023, which would be “a little above pre-pandemic levels.”
AutoNation Inc.’s supply of new vehicles improved to 19 days at the end of December, compared with 15 days at the end of September and just nine days a year earlier. AutoNation CEO Mike Manley said last week that there is plenty of room for improvement with the latest number.
“If you look at our overall inventory levels … our days of supply is still very, very low,” Manley said.
And that situation is likely to persist, he indicated. While Manley predicted that the industry’s new-vehicle sales volume “under the right circumstances” should rise this year to more than 15 million vehicles, he also said he expects AutoNation to end 2023 with “very relatively low” inventory levels as compared with years earlier.
Group 1 Automotive Inc. reported 8,000 new vehicles in inventory in the U.S. at the end of 2022, reflecting a 21-day supply. That’s up six days from the end of September, when Group 1 had just 15 days of supply in the U.S. While both numbers remain low, they are an improvement over the end of 2021, when new-vehicle inventory in the U.S. was at just a nine-day supply.
Group 1 CEO Daryl Kenningham in late January noted that the inventory gains involved primarily domestic brands, with import-brand vehicles remaining “very constrained.” That’s particularly true with Toyota and Lexus, brands for which Group 1’s supplies continue “to be very tight at a combined four days’ supply,” Kenningham said. Those two brands generate 30 percent of Group 1’s U.S. business, according to the company.
Over the coming months, Kenningham predicted that inventory and profit margins will continue to normalize.
“We expect a gradual decline in new-vehicle margins over the course of 2023 as inventory continues to recover,” Kenningham said. “We do, however, expect normalized new-vehicle margins to eventually settle above our pre-pandemic levels.”
Penske Automotive Group Inc.’s U.S. new-vehicle supply gradually improved from quarter to quarter throughout 2022.
At the end of the year, Penske had an 18-day supply of new vehicles in the U.S. That’s double what it was at the end of March and up from 12 days at the end of June and 15 days at the end of September.
CEO Roger Penske said this month that he is optimistic about increased supplies for some new vehicles.
“Demand for new vehicles remains strong, and vehicle availability is improving,” Penske said. “However, we do expect supply constraints to remain during 2023 for most of the brands in the premium side that we represent.”
Sonic Automotive Group Inc.’s franchised dealerships ended 2022 with a 24-day supply of new vehicles, counting in-transit models, up from 18 days at the end of September and 16 days at the end of 2021. By contrast, a typical year-end supply figure before the pandemic ranged from 55 to 60 days, CEO David Smith said last week.
Sonic President Jeff Dyke said the industry likely will see a 10 percent increase in U.S. new-vehicle sales in 2023.
“New-car inventory’s coming back,” Dyke said.
As supplies improve, “margin is [going to] be the big question,” he said. Dyke predicted average gross profit will drop but that increased volume will help offset that decline.
Asbury Automotive Group Inc. reported new-vehicle supply of 26 days at the end of 2022, up from 19 days at the end of September and just eight days at the end of 2021. CEO David Hult said this month that Asbury’s highest-volume luxury- and import-brand dealerships still had days’ supply in only the single-digit range at year-end.
“That really governed our ability to grow what was there,” Hult said, adding that more than 35 percent of Asbury’s inventory remains presold in early 2023.
Some automakers are rebuilding their supplies sooner, Hult said, while others will need most of 2023 to return to normal. Stellantis and other domestic-brand automakers are likely to be restored in the first half of this year, he said, but brands such as Toyota and Honda will take longer.
Asbury should maintain good margins even with vehicle inventory increasing, Hult said, citing an example of an unnamed domestic-brand automaker. That automaker “got back to close to normal levels” of supply, yet recent gross margins were much higher than in 2019, before the pandemic, he said.
“So we think [gross profit in 2023 will] be healthy,” Hult said. “We think it’ll be well above ’19.”
Gail Howe, John Huetter and C.J. Moore contributed to this report.