Sales Drop Pushes Prices Down, Squeezes Dealer Margins
September 17, 2009
The precipitous drop-off in car sales after the conclusion of Cash for Clunkers is pushing transaction prices lower and squeezing dealer profit margins, Edmunds.com data shows.
In early August, Edmunds.com analysts reported that Cash for Clunkers shoppers were paying higher prices for their cars, perhaps neglecting to negotiate distracted by the government rebate. Limited supply and high demand drove prices up for everyone else as well.
Since the Car Allowance Rebate System (CARS) program ended on Aug. 25, car sales have dropped to their lowest rate of the year, and consumer discounts are increasing even as the average vehicle purchased is more expensive.
Prices and Profits: Before, During and After Cash for Clunkers
Timeframe MSRP Price Dealer Profit before Cash for Clunkers $ 30,998 $ 28,723 $ 981 week1 Cash for Clunkers $ 27,533 $ 25,916 $ 1,147 week 2 Cash for Clunkers $ 27,193 $ 25,738 $ 1,288 week 3 Cash for Clunkers $ 27,762 $ 26,262 $ 1,375 week 4 Cash for Clunkers $ 28,196 $ 26,704 $ 1,460 week 5 Cash for Clunkers $ 27,595 $ 26,352 $ 1,494 week 1 after Cash for Clunkers $ 32,345 $ 30,289 $ 1,444 week 2 after Cash for Clunkers $ 31,641 $ 29,890 $ 1,434 week 3 after Cash for Clunkers $ 32,478 $ 30,142 $ 1,303
Source: Edmunds.com
This week the U.S. Labor Department released its consumer price report for August that showed Cash for Clunkers triggered a 1.3-percent decline in the new vehicle price index, a decline largely attributable to "forced downsizing." As a result of the program's fuel economy requirements and luxury car price cap, participants were drawn to less expensive vehicles.
"The program also brought into the market people who are highly price sensitive and normally might have bought used cars," noted Edmunds.com CEO Jeremy Anwyl.
Edmunds.com's mid-month forecast issued this week shows the Seasonally Adjusted Annual Rate (SAAR) of sales in September is on track to fall to 8.8 million for the year's lowest rate following the year's highest rate of 14.1 million in August.
Posted by Michelle Krebs at 1:34 PM under Analysis , Companies | Comments (2) | digg this | Seed Newsvine
Again, I would respectfully suggest that you read the new vehicle CPI methodology - it is a fixed basket, "forced downsizing" would not cause the index to fall
Posted by: olddlr | September 18, 2009 at 6:24 AM
I agree with olddlr--with C4C sales representing less than 5% of total sales during the program, their impact would not have been as dramatic on profitability.
What's more likely, in my view, is that C4C deals were typically closer to full retail than others, and now buyers are eschewing dealer-installed options, which as we know, carry higher margins than factory-installed ones. By contrast, most C4C deals looked to be at or close to MSRP + dealer adds.
Posted by: billddrummer | September 18, 2009 at 10:36 AM