My three-year car lease is coming due this month, so I’ve been weighing my options of buying out the lease or turning in my vehicle and leasing a newer model. I have been a loyal customer to a particular manufacturer for the past 12 years, so there was no question that I wanted to stick with my current brand. However, imagine my surprise when the new lease quote was double my current monthly payment even for a lesser trim package. How has the market changed so much in the past three years?
According to D&B Hoovers First Research, vehicle dealers are facing many challenges that are contributing to skyrocketing costs. Here are a few challenges the industry is facing:
Car sales depend on factors such as economic conditions, fuel costs, inflation, and consumer spending. These things vary year-to-year, which was especially apparent as we saw a steep decline in sales during the thick of the pandemic.
Interest Rates/Inventory Costs
The cost to dealers to carry inventory, especially with rising interest rates, means keeping a full lot either cuts into profits by an increase in carrying costs or lower sales volume.
Global Chip Shortage
As semiconductor manufacturers have prioritized smartphones and other consumer electronics ahead of vehicles, a worldwide chip shortage has significantly impacted the automotive industry and caused an inventory shortage for dealers.
Changed Role for Local Dealers
E-commerce has changed the automotive dealer industry. Local dealers are having to enhance their online presence and services to appeal to buyers that prefer a digital retail experience. Online car retailers, such as Carvana, have experienced huge growth in the past several years.
Currency fluctuations, import duties, and trade regulations on foreign imports all affect car pricing and dealership costs.
Needless to say, I’m now considering a switch to a different manufacturer with more favorable pricing in my vehicle search. Wish me luck!
Source: D&B Hoovers First Research