The Kerrigan OEM Survey

2024 Kerrigan OEM Survey Results

This one-of-a-kind survey provides a critical window into the perspectives of OEM executives whose views are not often shared publicly in the industry. This year’s survey results demonstrate that OEM executives have a largely positive outlook regarding the health of the auto retail industry, expecting auto retail earnings to normalize at higher levels as new vehicle sales rebound and new vehicle gross margins remain above pre-pandemic levels. The results also make clear the industry’s transition to EVs will be much slower than originally projected and that OEMs are preparing necessary contingency plans for increased internal combustion engine (ICE) production to meet consumer demand and the US auto market reality.

Dealership Profits, Sales and Inventories

The results of our second annual OEM executive survey found that the majority of respondents (54%) expect dealership profitability to decline in the next 12 months, an improvement from 2023 when 69% of respondents expected a decline. Consistent with this improved outlook, 41% of executives expect profits to remain the same over the next 12 months, up from just 24% last year. As with 2023, a slim minority project dealership earnings to increase in the near-term. These results indicate auto retail profits are beginning to normalize for many franchises.

Of the executives surveyed, just 38% believe new vehicle gross margins will return to pre-pandemic levels, while the majority of respondents (62%) project margins will normalize above 2019 levels (ranging from 50% to over 150% above 2019 levels).

Despite high interest rates and consumer affordability challenges, 44% of surveyed executives expect new vehicle sales to increase over the next 12 months, while 48% project sales will remain at 2023’s levels. Just 8% expect a decline in sales over the next 12 months.

Higher projected sales are likely a byproduct of rising new vehicle inventory expectations. Over the next 12 months, OEM executives surveyed project higher inventory levels, with the majority (70%) expecting days’ supply of new vehicles to normalize at 60-90 days, up from 38% in 2023. Just 22% of respondents project days’ supply to remain within 30-60 days in the next 12 months, down from 59% in 2023. Also, the survey saw a nearly threefold increase in OEM executives who believe days’ supply will reach 90+ days in the next 12 months. Notably, as of June 2024, industry days’ supply of new vehicles was 76 days, squarely in the expectations of the majority.

EV Transition
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In addition to questions regarding dealership sales and profits, Kerrigan Advisors also queried OEM executives regarding the EV transition in the US auto retail marketplace. A majority of respondents (64%) project OEMs will not meet their proposed EV sales goals. In related results, a notable 86% of respondents said their OEMs are developing contingency ICE production plans if EVs do not penetrate the market as expected. Consistent with this data, an overwhelming 81% of OEM executives believe the transition to EVs will be slower than originally planned. OEM executives’ perspectives are consistent with declining EV sales growth (through June 2024, EV sales growth is down 84% compared to 2023).

Interestingly, OEM executives mostly fault high vehicle prices as the reason EV sales are struggling in the US (39%), followed by the lack of a charging infrastructure (31%) and weak consumer demand (30%). The impediment of high prices may soon be addressed as new EV prices have declined 16% through June 2024 from their peak in June 2022 and are beginning to approach price parity with ICE vehicles.

That said, the lack of a prolific and dependable charging infrastructure remains a significant hurdle to EV adoption throughout the US.

‍OEM and Dealer Relations
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As it relates to OEM dealer relations, the failure of OEMs to meet their projected EV sales goals has resulted in some significant changes in OEM expectations of dealers, particularly as it relates to the agency selling model and facility requirements. A majority of survey respondents (57%) do not expect the agency model to be introduced in the US in the next five years, a dramatic shift from 2023. As EV inventory levels rise, OEMs, such as Ford, are abandoning their plans to take a more active role in retailing. Many now recognize the dealer network is the most economic and efficient sales model for the OEM.

Interestingly, the decline in EV sales expectations is also resulting in a shift in OEM projections related to dealership facility requirements. Whereas in 2023, 32% of respondents projected an increase in facility requirements over the next five years, now just 18% expect an increase. The vast majority of executives surveyed (60%) today believe facility requirements will remain the same, while 22% see a decline in requirements, perhaps as EV charging infrastructure investments become a less critical OEM priority.

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While OEMs are more supportive of the legacy sales model, a rising number expect to take a leading role in the customer relationship and data ownership. The majority of respondents project 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.

The results of Kerrigan Advisors’ second annual OEM Survey demonstrate the continuing evolution of the auto retail marketplace, particularly with the transition to EVs. The survey results make clear the industry is in the midst of a normalization period, in which dealership sales, profits and inventories are moderating likely at more attractive levels than the pre-pandemic period. The majority of OEM executives also report that their EV sales are not meeting original expectations and contingencies are required given marketplace realities. The failure of EV sales to meet expectations has led to a pullback in OEMs’ changes to the retail sales model and facility requirements, though 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.