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A Soft Landing for Dealerships?

No doubt, it’s been a rough few months for dealerships. The pandemic has delivered a gut-punch to the US economy which contracted at a 32.9% annual rate from April through June, its worst drop on record, according to the Bureau of Economic Analysis. Business ground to a halt during the Spring lockdown, idling retail automotive OEM and parts manufacturers. As the U.S. has started to re-open in places, there were some upticks in retail automotive sales in June and July. U.S. retail auto sales rose by 1.2 percent during the last two months, aided by $600 weekly unemployment assistance payments, which expired at the end of July.

While sales rose over the last couple months, many believe that the U.S. has plunged into its first recession in 11 years, putting an end to the longest economic expansion in U.S. history. Whether this is a long-term recession lasting more than two quarters, or merely the bottom trough on the graph, struggles remain for retail automotive dealerships to maximize revenue opportunities in the second half of the year.

At EFG, we predict continued softness in light vehicle sales with greater downside performance risk than upside opportunity. We expect U.S. new light vehicle sales to finish 2020 around 14.0 million, representing a decline of 18 percent from 2019, and we expect a recovery to approximately 15.6 million retail units in 2021. However, we do see evidence that retail automotive dealerships are successfully managing the impact, and strengthening in F&I is boosting revenue.