Strong grosses great, but they shouldn't be rare

Industry

Dealer grosses this month reached their highest levels since 2007, according to J.D. Power, thanks to a number of COVID-19-related variables working in unison to give franchised auto dealers their strongest pricing power since before the Great Recession.

While growing per-vehicle profits on their signature product might seem cause for at least quiet celebration, how dealers got to this place is a path no one would want to retread: a near collapse of the U.S. economy, a botched response to a pandemic and 140,000 deaths in the U.S. and counting.

It’s also likely temporary. Auto factories have largely returned to pre-pandemic production levels, and the giant federal spigot that has showered U.S. consumers with cash to keep the economy running for the last four months looks as though it is about to be turned down quite a bit.

At the least, these temporary conditions deserve a moment of reflection. After all, what does it say about automotive retailing if it takes such extraordinary circumstances for dealers to make good money selling new cars?

It suggests that the sustained 17 million vehicle selling rate of the last half decade — those “good ol’ days” before the pandemic — papered over a lot of profit-sapping practices, many done to placate impatient investors on Wall Street.

How many times since the Great Recession have automakers jammed their dealers with excess inventory to boost their own quarterly returns? How many times have they thrown huge, unsustainable incentives at consumers to counter a surging competitor? How many heavily subvented lease deals were offered to achieve little more than bragging rights? How many dealers got hooked on the monthly drug of stairstep sales incentives to turn a profit?

Dealers’ hands aren’t completely clean, either. Yes, carrying large inventories provided a greater chance to meet the desires of any given consumer and made it less likely they would move on to the dealer down the street. But that practice also raised floorplan costs and made chasing dangerous stairsteps an ugly necessity.

These may be unprecedented times in the auto industry, but profitably selling new vehicles shouldn’t be a fluke of circumstance. The sales discipline and inventory management practices brought on by COVID-19 can and should live on long after this damnable virus meets its end.

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