2024 Kerrigan OEM Survey finds OEMs expect
sales to increase and earnings to normalize at higher levels over
the next 12 months, despite high interest rates and affordability
challenges; majority of OEMs developing ICE production contingency
plans as electric vehicle (“EV”) demand softens and EV sales
expectations wane
Automotive OEMs are generally optimistic about the health of the
automotive industry over the next 12 months, with the vast majority
expecting new vehicle sales to increase or remain the same versus
2023, according to the just-released 2024 Kerrigan OEM Survey.
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EV Transition Expected to Slow, with ICE
Contingency Plans Developing (Graphic: Business Wire)
The survey, gathered from Kerrigan Advisors’ annual survey of
automotive OEM executives in conjunction with the issuance of The
Blue Sky Report®, is designed to gauge OEM executives’ perspectives
on the franchise system, dealer profitability and electric vehicle
sales. The 2024 results indicate that despite high interest rates
and consumer affordability challenges, the industry is amid a
normalization period, in which dealership sales, profits and
inventories are moderating, likely at more attractive levels than
the pre-pandemic period. Strikingly, the survey reveals significant
challenges with the industry’s transition to EVs, with 81% of OEMs
expecting the transition to be slower than originally forecast.
“Our second annual survey of OEM executives provides a critical
window into their unique perspectives of the automotive industry.
The survey offers a candid, on-the-ground view of auto retail’s
opportunities and challenges in the near and medium term,” said
Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors.
“The results underscore the continuing evolution of the auto retail
marketplace, particularly regarding the demand challenges
associated with EVs. It is interesting to see that most OEMs are
making contingency plans for increased ICE production and admitting
their EV sales projections will not be met. Even with the EV
miscalculations, we are pleased to see that executives have a
largely positive outlook on the auto retail industry, expecting
rebounding new vehicle sales and gross margins to remain above
pre-pandemic levels for the foreseeable future.”
Dealership Profits, Sales, Margins and Inventories Reflect
Improving Outlook
Only 54% of OEM executives surveyed expect dealership
profitability to decline in the next 12 months, compared with 69%
in 2023. Consistent with this improved outlook, 41% of OEMs expect
profits to remain the same over the next 12 months, versus just 24%
who had that expectation last year. As with 2023, a slim minority
project dealership earnings to increase in the near-term. These
results are an indication that auto retail profits are beginning to
normalize for many franchises.
Despite high interest rates and consumer affordability
challenges, 44% of OEMs expect new vehicle sales to increase over
the next 12 months, while 48% project sales will remain at 2023
levels, only 8% expect a decline. This sales optimism is likely a
byproduct of rising new vehicle inventory expectations, with 70%
projecting days’ supply to normalize between 60 and 90 days, up
from 38% in 2023.
“We are in the midst of auto retail’s great normalization. After
years of historically high dealership profits, new vehicle
inventories are rebounding and gross profit margins are on the
decline,” continued Erin Kerrigan. “That said, we are pleased to
see the majority of OEM executives do not expect a return to
pre-pandemic gross profit margins. In fact, an increasing number of
executives predict dealership earnings will flatten in 2024 - an
indication OEMs do not intend to return to a period of
overproduction and excess inventories.”
EV Transition Remains Slow, Impacting OEM Decisions
In addition to the vast majority who anticipate a slower
transition to EVs, over two-thirds of OEMs surveyed project that
they will not meet their proposed EV sales goals, with 86%
reporting they are developing contingency ICE production plans if
EVs do not penetrate the market as successfully as expected. These
results are consistent with the declining sales growth in EVs –
through June 2024, EV sales growth is down 84% compared to
2023.
The failure of OEMs to meet their projected EV sales is also
driving substantial modifications to their expected changes to the
auto retail model: over half of OEM respondents do not expect the
agency model to be introduced in the US in the next five years, a
dramatic shift from the only 24% who were skeptical in 2023. The
survey also reveals a major change related to anticipated increases
in facility requirements, with 60% expecting no increase in
requirements over the next five years, and only 18% projecting an
increase, compared to 32% in 2023. Additionally, while OEMs are
more supportive of the dealership legacy sales model, a rising
number expect to take a leading role in the customer relationship
and data ownership. The majority (67%) expect the customer
relationship and data will be shared by OEMs and dealers in the
future, though 19% (a 16% increase from 2023) believe the OEM will
exclusively own the customer relationship and data. Just 14% of
respondents project the legacy model, in which the dealer is the
primary owner of the customer relationship, will remain. These
results demonstrate the OEMs’ continued desire to have more direct
management of the customer relationship.
“As our survey makes clear, the industry’s transition to EVs
will be much slower than originally projected and OEMs are
preparing necessary contingency plans for increased ICE and hybrid
production to meet consumer demand,” said Ryan Kerrigan, Managing
Director of Kerrigan Advisors. “This has also led to a pullback in
OEMs’ changes to the retail sales model and facility requirements,
with some, such as Ford, abandoning their plans to take a more
active role in retailing and recognizing the dealer network is the
most economic and efficient sales model. That being said, as our
survey indicates, executives still believe the customer
relationship and data is squarely in their future domain. The 2024
Kerrigan OEM Survey cements the industry’s expectation that change
is the only constant.”
Key OEM Survey Data
- 46% project profits will stay the same or increase in the next
12 months, while 54% expect a decline in the next 12 months an
improvement from 69% in 2023.
- 62% expect new car margins to normalize above 2019 levels,
while only 38% believe they will return to 2019 levels.
- 44% say new vehicle sales will increase over the next 12
months, 48% project sales will remain at 2023’s levels and 8%
expect a decline.
- Days’ supply of new vehicles is expected to normalize at 60-90
days in the next 12 months say 70% of respondents, up from 38% in
2023. 22% project days’ supply to remain within 30-60 days in the
next 12 months, down from 59% in 2023.
- 81% of OEM executives believe the transition to EVs will be
slower than originally planned.
- 64% do not expect to meet their EV sales goals, prompting 86%
of respondents to reveal their organizations are developing
contingency ICE production plans if EVs do not penetrate the market
as expected.
- 67% expect customer relationship/data will be shared by OEMs
and dealers in the future, although 19% (a 16% increase from 2023)
believe OEMs will exclusively own the data. 14% of respondents say
the dealer will be the primary owner.
- Only 18% of respondents projected an increase in facility
requirements over the next 5 years, while 60% believe they will
remain the same, and 22% anticipate a decline.
Methodology
The data for The Kerrigan OEM Survey was gathered from Kerrigan
Advisors’ annual survey of automotive OEM executives in conjunction
with the issuance of The Blue Sky Report®. The survey is based on
over 110 responses from OEM executives in Kerrigan Advisors’
proprietary database. Responses were collected from December 2023
to June 2024.
- To download the full Kerrigan OEM Survey report, click
here.
- To download a preview of The Blue Sky Report®, published by
Kerrigan Advisors, click here.
- To access The Kerrigan Index™, click here.
- To access results from the latest Kerrigan Dealer Survey, click
here.
About Kerrigan Advisors
Kerrigan Advisors is the leading sell-side advisor and thought
partner to auto dealers nationwide. Since its founding in 2014, the
firm has led the industry with the sale of over 275 dealerships
representing more than $9 billion in client proceeds, including the
third largest transaction in auto retail history – the sale of Jim
Koons Automotive Companies to Asbury Automotive Group. The firm
advises the industry’s leading dealership groups, enhancing value
through the lifecycle of growing, operating and, when the time is
right, selling their businesses. Led by a team of veteran industry
experts with backgrounds in investment banking, private equity,
accounting, finance and real estate, Kerrigan Advisors does not
take listings, rather they develop a customized sales approach for
each client to achieve their personal and financial goals. In
addition to the firm’s sell-side advisory services, Kerrigan
Advisors also provides a suite of consulting and investor services
including growth strategy, market valuation assessments, capital
allocation, transactional due diligence, open point proposals,
operational improvement and real estate due diligence.
Kerrigan Advisors monitors conditions in the buy/sell market and
publishes an in-depth analysis each quarter in The Blue Sky
Report®, which includes Kerrigan Advisors’ signature blue sky
charts, multiples, and analysis for each franchise in the luxury
and non-luxury segments. To download a preview of the report,
click here. The firm also releases monthly The Kerrigan Index™
composed of the seven publicly traded auto retail companies with
operations focused on the US market. The Kerrigan Auto Retail Index
is designed to track dealership valuation trends, while also
providing key insights into factors influencing auto retail. To
access The Kerrigan Index™, click here. To read the 2023
Kerrigan Dealer Survey, click here. Kerrigan Advisors also is
the co-author of NADA’s Guide to Buying and Selling a
Dealership.
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version on businesswire.com: https://www.businesswire.com/news/home/20240729703758/en/
Kerrigan Advisors Media Contact: Melanie Webber
(melanie@mwebbcom.com), mWEBB Communications, 949-307-1723