US auto retailers' falling new vehicle margins compress quarterly profits

Lithia Motors

14/02/2024 17:47

By Nathan Gomes
       Feb 14 (Reuters) - Several U.S. auto retailers reported
dour fourth-quarter profits this week, as price cuts and
incentives to lure in buyers in a turbulent economy put a strain
on new-vehicle margins.
    Higher vehicle production, which has eased supply, has also
trimmed dealer margins, auto retail chain executives said this
week.
    This is in contrast to high prices that auto dealers
commanded over the past few years, taking advantage of strong
demand for new vehicles and short supplies of popular models due
to supply chain bottlenecks.
    "Discounts and incentives on new-vehicles continue to rise,
and that is putting downward pressure on pricing and
profitability for dealers and automakers alike," a Cox
Automotive report showed on Tuesday. 
    But despite lower prices and higher incentives, U.S.
new-vehicle sales pace slowed in the first month of the year,
the report said.
    Electric vehicles (EV) have also been a cause of concern for
retailers. They have had to shell out more to market EVs, which
have seen varying levels of demand owing to their higher
maintenance costs and lower resale values.
    To make matters worse, EV prices have come down
significantly in the U.S. in the past year, led by price cuts at
Tesla  TSLA.O , Cox added.
    "New vehicle margins continue to decline, but the rate of
moderation in the fourth quarter, which was about $120 per month
was more modest than earlier quarters," car retailer AutoNation
 AN.N  CEO Mike Manley said on an earnings call on Tuesday.
    While dealer Lithia Motors'  LAD.N  new vehicle margin fell
to 7.9%. 
    However, retailers showed confidence in their after-market
service units, lifting their profits from maintenance related to
new vehicles, with more technology and software adding an extra
layer of complexity.
    Shares of Sonic Automotive  SAH.N , which missed
fourth-quarter estimates on Wednesday, were down about 5%.
AutoNation's shares were also marginally down, while those of
Lithia were slightly up.  

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New vehicles average transaction prices over the past year 
  https://reut.rs/3uBWSmn
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 (Reporting by Nathan Gomes in Bengaluru; Editing by Shinjini
Ganguli)
 ((Nathan.Gomes@thomsonreuters.com;))