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Despite predictions that the ability to buy and finance vehicles online would threaten traditional brick-and-mortar car dealerships, a recently released new study shows that the number of stores actually increased last year, increasing the number of passenger cars and Truck sales also increased.
According to the Automotive Franchise Activity Report (FAR) at the end of 2023 by automotive consultancy Urban Science, the number of brick-and-mortar dealerships, also known as rooftops, will increase by 90 in 2023 compared to the end of 2022 (18,347 vs. 18,257 companies).
However, the number of franchises, and therefore the number of brands offered by those outlets, decreased from 31,554 in 2022 to 30,504 at the end of 2023, a decrease of 1,050 franchises from the previous year.
“It’s no big deal,” Mitch Phillips, director of global data at Urban Science, asserted in an interview. “These numbers are about the same as they were 14 years ago. stores into one store, and in some cases expand, but consumer choice still exists.”
Indeed, the fluctuations in the number of dealers and franchises are relatively small and consistent with historical cycles, which is surprising given the impact of the coronavirus pandemic, supply chain disruptions, and semiconductor chip shortages.
“Dealers were able to maintain stable counts and weather the storm, which is great. They’re a very adaptable bunch,” Phillips said.
Perhaps the most conclusive evidence of how adaptable dealers are is the increase in the number of vehicles they sell each year, a number known as throughput.
When the coronavirus pandemic became serious in 2020, sales plummeted from an average of 940 units per year to 807 units. Over the next three years, sales rebounded to 826 units as dealers began to adapt to the changing economy and the challenges posed by the pandemic. It dropped to 759 in 2021, but recovered to 851 last year.
With total U.S. sales now at 16.1 million units, Urban Science predicts sales will continue to increase this year, with an average of 880 units sold at each dealership.
While this is a significant increase in throughput, it is still far below 966 in 2015, when U.S. industry sales reached 17.4 million units. Still, it’s an encouraging development and further evidence of dealers’ adaptability during and after the pandemic, Phillips said.
“They were able to adjust even if they couldn’t go to the dealership and had to go digital. They just didn’t have the physical inventory that they had to sell,” Phillips said. said. “They were great at adapting to change without missing a beat.”
But increased volume doesn’t necessarily mean increased profits, according to a report released by J.D. Power last Thursday.
“Retailers’ gross profit per vehicle, which includes gross vehicle profit plus finance and insurance revenue, is expected to be $2,574 starting in February 2023,” said Thomas King, president of data and analytics at J.D. Power. “This will decrease by 31.3%.” “The primary driver of the decline in profits is increased inventory, with fewer vehicles selling above Manufacturer Suggested Retail Price (MSRP). So far in February, Only 17.4% of new cars were sold, down from 31.7% in February 2023.
One of the big changes dealers are adapting to is the transition to electric vehicles. Phillips says sales data trends need to be strategically analyzed before making a major investment, but “we need to be prepared that these vehicles will need to be sold and serviced.” I’m warning you.
So what happened to predictions that brick-and-mortar dealerships would be replaced by online car sales? Phillips notes that this hasn’t happened to millennials who stick to their traditional tastes. I appreciate it to some extent.
“They want to get in there and see it, get in the car, test drive it, and smell the new car,” he says. “That hasn’t changed.”
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