The U.S. auto industry is expected to suffer a massive decline in total dealership gross profits this year, but it is still expected to finish with the third-best profit level in history as the industry rebalances itself, says Thomas King, president of data and analytics for J.D. Power.
Speaking Thursday at the J.D. Power Auto Summit in Dallas, King said the U.S. retail industry generated a record $55 billion in collective dealership gross and F&I profits in 2022 as low inventories and reduced incentives met strong demand to push transaction prices to record levels.
“2022 was so stratospherically high, the only way was down,” King said, predicting a decline to between $28 billion and $37 billion for 2023. But, he said, “Even at $28 billion, that’s still the third-best year in history.”
Factors that will drag down prices and profitability this year, King said, include falling trade equities; potential further interest rate hikes; increased supply leading to less dealership pricing power; and incremental production by automakers of lower, less profitable trims to meet demand.
King said total 2023 industry volume is expected to increase to between 15 million and 15.3 million vehicles, but it won’t be equal among all automakers, leading to potential pressures as some have stock to meet demand while others don’t.
“There is going to be more supply,” King said, but “price and profit erosion this year is pretty much inevitable.”