US Auto retailers face squeeze

The automotive industry has enjoyed a strong rather than fragile recovery compared to many sectors in the US.   Cheap finance for cars, overdue upgrade/replacement activity, and a moderate improvement in employment figures has set the scene for high levels of sales over recent years.  At some stage, pent up demand is likely to be satisfied.  There are potential implications for US auto retailers.

US Auto Volumes

Chart 1: Source, QMG


Currently (Chart 1, above), manufacturers and retailers are seeing steady yoy volume growth of around 8% and 7% respectively.   However, manufacturers are seeing slightly stronger pricing power (1.8%) compared to the flat pricing power of retailers (0.4%) (Chart 2).   This is due to manufacturers holding back on the volume discounts previously made available via dealerships, and instead offering consumers the opportunity to buy directly from the manufacturer.   Auto retailers are pinned into a corner as retailers are effectively competing against the manufacturers on price, hence the low price figures.

US Auto Prices


Chart 2:  Source, QMG

The US population is growing at less than 1% (Chart 3, below), indicating a relatively fixed market.  Only so many people can embark on a car replacement process over a given period of time, and this process is well underway.  With increased second hand car stock available, auto-retailers inventories are likely to grow in the face of weaker volumes as the desire to upgrade/replace vehicles is satisfied.   The impact on pricing power, and thus margins for US auto retailers looks ominous (Chart 4, below)

US Population Growth


Chart 3:  Source, US Census

Auto retailer margin v sales

Chart 4:  Source, QMG

Leave a Reply

Your email address will not be published. Required fields are marked *

× three = 18