Businesses that sell products operate off of “supply and demand,” in that the shorter the supply, the higher the demand. Since cars are products, car dealerships are run the same way, which is why in the 2020 many car dealership profits soared, despite the fact that car sales were down.
Car dealers put “the squeeze” on customers in 2020
While many of us of have our fair share of car dealership horror stories and the stigma against them seemingly never goes away, we have to hand it to them when it comes to their business tactics. In the case of the first part of 2020, when the pandemic was just starting, car inventories across the nation were low, according to Forbes.
Road and Track reported that closed factories (due to COVID-19) “drastically reduced supply, but the demand stayed strong.” And while you might think that shortage of cars means fewer car sales, the opposite was true. The shortage of cars actually led to more pressure on dealers to sell in-demand models, which customers were willing to pay for, so the dealers were able to charge more and increase their profits.
In 2020 alone, the gross profit for each unit rose 22% on new cars and 13% on used cars, and that increase wasn’t only due to dealership markups. Road and Track also noted that the pandemic didn’t hit everyone equally, in that many workers were able to work remotely and those that were more well-off financially were able to shift with change more readily and easily.
That also equated toward a shift toward buying more expensive cars. The sales of cars priced between $80,000 to $90,000 increased by 91% year-over-year at the end of 2020, while cars priced below $20,000 suffered a 30% drop year-over-year. That being said, it’s tough to say how car sales will end up this year.
Dealers are still hoping to make more a profit in 2021
According to Ari Janessian, a YouTuber and owner of Boston Automotive Consulting, manufacturers have not yet caught up with the inventory yet, so dealers are looking to make the same type of profit in 2021. What that means is that if you’re in the market for a new car, then you might not get a large discount like you could be expecting yet. However, there are some ways to get the most out of your next car purchase despite the higher pricing.
Don’t be afraid to shop around
If you are currently in the market for a new or used car, Janessian says that you shouldn’t be afraid to shop around during this time period. If you’re currently trying to find a car on sites like Cargurus or Cars.com, you can expand the radius that you’re searching in order to find the car that you’re looking for and at a better price than you can get at your local dealer.
Additionally, the size of the dealership can make a difference in the pricing that you’ll receive. Larger dealerships typically have a lot more inventory than the smaller ones which means that you could have an easier time getting a lower price, since they’ll be able to discount more. While pricing might still be a little more elevated in 2021, getting a good deal is possible, it just might take a little more research.