It's been a while since I focused our ACG "Smart Parts" topic on the "State Of Our Industry" as I normally do at the end and beginning of each year. Even though it's only our September issue, so much has and is happening that I just couldn't wait until the end of the year.
Another reason for not waiting to the end of the year is, in my opinion, things are happening so fast in 2021, especially if we compare what's happening now versus just over 18 months ago when this whole Pandemic started.
But!...it's not just the Pandemic that's causing what we are seeing today versus just a year and a half ago, even though it may have just been the "catalyst" of what we are seeing now and more importantly, what's to come.
Who would have ever thought that dealers would be making more "Front & Back" Gross Profit on New and Used Vehicles than ever before? Especially when we have the microchip shortage that has impacted dealers new vehicle inventory, which we will also cover further down in this article.
Who would have also thought that the Dealers Fixed Operations would rebound from Covid-19 at record levels in many dealerships? How could all this happen after such a serious health crisis that we are still dealing with even today with the Delta Variant?
The answer to these and many other questions that we will be exploring in this issue of ACG "Smart Parts" has to do with much more than the average person might think. Even though the "cause and affect" on these topics we discuss are not unfamiliar, it's the immensity of these topics that has had such a huge impact.
We have all heard the terms of Global Domestic Product, (GDP), The Economy, Covid-19, Global Issues, Unemployment Rates, Inflation, Industry Guidelines and Results, and most familiar and right down to earth for us "Smart Parts" Manager...Back Orders!
That being said, and if we have all heard these terminologies before...then why are they impacting us so much more than ever before in our history?...and not just in our industry as all retail markets are being affected right down to going to the grocery store and filling up our tanks.
"Could This Be The Perfect Storm, or...Could It Perhaps Be The New Normal?"
Let's Read On To Find Out!...
As mentioned, we will be exploring all of these "cause and affect" areas that are impacting what we are seeing and experiencing today. Each category will have a detailed correlation to our Parts Industry and our whole Auto Industry in general.
We will also include industry information through the first half of this year from NADA and their Chief Economic Advisor, Patrick Manzi. This information from the first two quarters of 2021 will lead us into all the other "cause and affect" areas that shape where we are today.
The following information provided by NADA and Patrick Manzi and readily available in full detail at:
Time to Kick Things Off with our September Issue of ACG "Smart Parts"!...
Breaking News: The Current State Of Our Industry
NADA Auto Sales Analysis - June 2021:
As mentioned , we will start with some statistics from our friends at NADA and Patrick Manzi, Chief Economics Advisor. Also keep in mind as we review these results that the current and on-going concern on the microchip shortage continues to play a role in the current new vehicle inventories in our dealerships today.
We won't get into the global and/or political aspects of this microchip shortage, rather we will look at the overall impact and the "trickle down" affect on how this has impacted our Parts Department Operations today.
Through June of 2021, 76.9% of New Vehicle Sales came from Light Truck, SUV's and Crossover Vehicles which is not a surprise. Of which, 17.6% of that percentage came from Light Truck, which is down from 20.0% from 2020.
This is pretty much due to "Lost Production" according to Auto Forecast Solutions from the drop in microchip inventories. As of June 2021, new vehicle production was down 4.6 million units from 2020, of which, new light truck production was down 1.5 million, with projections to be down to 1.8 million by the end of this year.
This all equates to a very common term for "Smart Parts" Managers which is overall Days Supply. As in the Parts Department, a 45 Days Supply of parts in dollar value is the current NADA Guideline. The same goes for new vehicle inventory, but with this microchip shortage, new vehicle inventories have dropped down to just 25 Days Supply.
Actually, the normal new vehicle inventory Days Supply would be approximately 60 Days Supply at 2.6 million in new Lt. Truck Inventory, but with projections going down to approximately 1.4 million in new Lt. Truck Inventory, the Days Supply will drop even lower than a 25 Days Supply.
New vehicle production is expected to rise in 2022, but even with this rise back to somewhat normal, fleet inventories such as rentals, commercial and government vehicle production orders will be filled before dealer inventories get filled.
High demand and low dealer inventories have also caused the average price of a new vehicle to rise to a record average of $40,206.00. This has also raised the new vehicle average monthly payment from $576.00 per month to $598.00 per month as more and more new vehicles are being sold at MSRP or higher.
With higher trade in allowances and lower, sustained interest rates, or at least until a projected 2023 timeframe, demand keeps pushing the price upwards, for both new and used vehicles. Even though manufacturer incentives are declining, dealers are realizing that less on the lot is actually more when it comes down to profit.
Could this be the "New Norm" going forward for dealers?...especially with the Floor Plan Expense Savings that dealers are experiencing now?....Only time will tell!...
The economy always has an affect on our industry, but in my opinion, not as much as it has to this point in 2021. Again, putting politics and world economics aside, the rise in inflation has been the highest in a such a short period of time than I have experienced in my lifetime.
Let's look at the month to month inflation rate since December 2020, which had us at an inflation rate of 1.6%. All percentages below provided by www.usinflationcalculator.com...
- January 2021: 1.6%
- February 2021: 1.7%
- March 2021: 2.6%
- April 2021: 4.2% (biggest jump!)
- May 2021: 5.0%
- June 2021: 5.4%
- July 2021: 5.4%
- United States: 25.3 Trillion
- China: 20.6 Trillion
- Japan: 5.6 Trillion
- Germany: 4.9 Trillion
- India: 4.9 Trillion