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Car Dealers Can Keep Rolling After Supply Crunch

car-dealers-can-keep-rolling-after-supply-crunch

Despite fears of car supply availability, auto dealers aren’t running into any speed bumps just yet.

Both Lithia Motors and AutoNation —dealers selling new and used vehicles—reported record revenue and profits last quarter. Lithia Motors said on Wednesday morning that its second quarter sales surged 118% compared with a year earlier; AutoNation’s sales jumped 54% in the same period.

New vehicle shipments seem to be catching up: They were down just 6% last quarter compared with 2019 levels, AutoNation noted on its earnings call on Monday. Demand still far outpaces supply, however. At AutoNation, there were just 14 days’ worth of inventory available for new vehicles; Lithia had 23 days’ worth. Dealers typically have 50 days or more worth of new car inventory on hand.

That mismatch between supply and demand comes with all kinds of perks for the dealers: Not only are they commanding higher prices, but they have also been paying less interest on floor-plan loans, which are typically used to finance floor inventory.

With more cars immediately sold off lots, AutoNation said it paid less than half in floor-plan interest expenses last quarter compared with a year earlier. Thanks to those favorable economics, net income at Lithia almost quadrupled last quarter compared with a year earlier, while profit at AutoNation—excluding discontinued operations—tripled.

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