Interesting read for the stats and math-driven crowd.
Automotive dealerships 2019–22: dealer markup increases drive new-vehicle consumer inflation
Using U.S. Bureau of Labor Statistics data and novel analytical methods, this article shows how automotive dealerships contributed to new-vehicle consumer inflation through markup increases during the economic recovery from the COVID-19 pandemic. Dealerships have a major role in managing the inventory of unsold vehicles and typically have a significant amount of unsold inventory rotating through their lots and garages. Being an inventory intermediary in the vehicle supply chain, and already having subdued margins due to previous profit-margin compressions, dealerships were well positioned to expand profit margins from new-vehicle sales in the recent economic expansion. These increases contributed substantially to new-vehicle consumer inflation over the last 3 years.
https://www.bls.gov/opub/mlr/2023/article/automotive-dealerships-markups.htm
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“During the COVID-19 pandemic, dealership profit-margin increases drove new-vehicle consumer inflation and contributed modestly to overall consumer inflation. The implicit relationships between BLS consumer and producer price data illustrate these inflationary dynamics. By relying on their existing inventories to supply consumers with vehicles, dealerships shrank those inventories and gained more pricing power. The PPI for dealership markups is a moderator variable that bridges the gaps in the implicit relationships among the CPI, PPI, and MPI for physical goods. These relationships may work in other industries and could offer a predictive path to estimating lagged quarterly profits with the more timely BLS monthly price data.”
My memory is iffy, but I think I recently read that acquisitions are on the rise, and there is a movement towards consolidation. Overtime, that means, there will be only a few large conglomerates, such as AutoNation that can better react to market conditions and control pricing.
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Some people say cucumbers taste better pickled.
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Right, as in “better react to market conditions” and also further constrain pricing through less dealerships.
The standalone, low-volume dealer will be come more scarce and deals will be less available as time marches on with the rise of the mega-dealership.
Same model as retail anything: soon there will only be Amazon, Walmart and Target.
15 years later and still a great line lol
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