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Say Goodbye to New Car Discounts and Incentives, Automotive Retailer Warns

The global health crisis and industry-wide chip shortage have significantly disrupted the auto industry market leading to supply chain issues, delays, and for consumers - higher car prices. As 2022 sets in, industry insiders are optimistic things will get back to normal, but according to the largest car dealership chain in the U.S., discounts on new cars may be a thing of the past.
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Pandemic-induced production cuts in the auto industry have led to tight inventories allowing auto manufacturers and car dealers to rake in fat profits selling on or above the sticker price, Fortune reported.

Dealerships offered discounts on new cars in the past, sometimes chopping off a huge chunk of the sticker price. It is important to note that the sticker price or the MSRP on a new vehicle does not necessarily reflect its value. If anything, it’s a suggestion. Automakers in the past used incentives such as rebates to adjust the price of new cars to match production to the demand. This adjustment gives a car buyer the illusion of a massive discount off the sticker price.

During an investor meeting on Thursday, the chief executive officer at AutoNation said there would be an absence of discounts for new vehicles even as vehicle production ramps up. However, the industry won’t get back to high inventory levels that hurt new car margins.

He added that huge discounts and incentives could significantly damage a brand, a reason why the industry needs to balance supply and demand.

High retail prices on new cars have had a domino effect on the used car market forcing prices to shoot off the roof. AutoNation benefited from this peak, posting record profits in its latest quarterly earnings. According to folks at Goldman Sachs, used car prices will peak throughout the first and second quarters of 2022.

Automakers in the U.S., including Ford and General Motors, promised to increase production even as the chip crisis pushes on into 2022. These companies have long been victims of extensive inventories at dealerships forcing discounts.

According to research by Edmunds, car buyers paid above the sticker price in more than 80% of new vehicle transactions in January. Jim Farley, Ford CEO, warned that it would withhold cars from dealers charging above recommended prices.

 
 
 
 
 

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