One Weekend in Vegas With the Nation’s Auto Dealers

The last time the National Automobile Dealers Association was able to hold its annual convention in person, the mood was far different. In a word, grimmer.

Just before the pandemic, pessimism abounded among the nation’s almost 18,000 new-car dealers. Threats loomed for the traditional sales model — for more than a century, one of the great generators of localized American prosperity.

There was concern, too, about the inexorable advance of electric cars, with their higher price tags and presumed reduced service needs. Autonomous cars portended a drop in car ownership (and buying) with their promise of expanded ride-hailing and car-sharing.

Then the Covid-19 pandemic arrived in March 2020 to deliver a feared final blow. While the year opened with brisk showroom traffic, the bottom fell out, with auto sales diving to an annualized rate of 8.8 million that April, roughly half the normal clip. Dealers were rushing to the exit doors, looking to offload businesses that might suddenly be worth only the price of their underlying real estate, if that.

But the pandemic scrambled the economy in ways big and small, predictable and highly erratic. Jobs vanished, but rebounded fairly quickly. Online retailing advanced at a lightning pace. Supply chains grew messy and inflation just grew. And, for car dealers, the unexpected happened.

Sales recovered rapidly. And by the time the dealers gathered last month in Las Vegas for the 105th edition of their annual conference, they were ebullient, toasting at cocktail parties and stalking the convention floor. Vendors, with anything a car dealer could need or dream of, were armed with enough promotional tchotchkes to fill several gymnasiums.

There was much to celebrate. Instead of imploding in the pandemic, profits for carmakers and dealers alike exploded and kept soaring. While some brands reported lower sales, transaction prices rose sharply to make up for lost volume, allowing many makers to notch record profits, sales or both. And, lo and behold, car dealers enjoyed their best year in history.

“It’s crazy times right now,” said Bruce Bendell, a founder of the Major World and City World chains, with eight dealerships in the Bronx and Queens.

Sheldon Sandler, a Wall Street accountant turned car dealership sales broker, agreed. “Every dealer today is making money hand over fist,” he said. “Dealers are making money with all brands, even second- or third-tier ones.”

Mr. Sandler is a founder and managing partner at Bel Air Partners, a New Jersey consultancy that specializes in the sale of private dealerships and dealership groups to publicly traded companies. If he had a problem these days, he said, it was finding dealers willing to sell their stores.

Swings in the trajectory of the pandemic can still hamper demand: After a strong first two months of the year, sales in the industry tumbled in March as fear of the coronavirus and stay-at-home orders kept consumers from dealerships.

But automobile sales in America account for close to a trillion dollars in annual economic activity and provide 2.3 million jobs. And the industry’s convention this year, after going virtual in 2021, recalled the good old days, with deal-makers making deals, carmakers outlining future products and plans in private meetings with their franchised dealers, and a staggering array of vendors selling everything from car-washing and tire-changing equipment to giant outdoor display machinery that can hoist cars 25 feet off the ground so they might be seen, revolving endlessly, from great distances.

“Dealers are making a lot of money,” said David Rosenberg, president of DSR Motor Group and former owner of Prime Automotive, one of the nation’s largest dealership groups, who today owns seven New England car dealerships. “The average Toyota dealer in the Boston region in the best years made between $2 and $2.2 million. Last year, the average net profit was $6 million.”

Though not a lot in absolute terms, stimulus money was crucial, said Steve Greenfield, chief executive of Automotive Ventures, an investment advisory firm in Atlanta. The government aid was “enough psychologically for people to feel like they could still spend through that,” Mr. Greenfield said.

“Supply of both new and used cars was so limited that when consumers found a car, they seized upon it, and they were totally price insensitive,” he continued. “The dealers parlayed that into more profit on the back end, with finance and insurance and extras, and, for whatever reason, consumers were so desperate that when they found a car, they would pay anything for it.”

Still, as I wandered the vast floors of the Las Vegas Convention Center and neighboring hotel suites, there were plenty of concerns. For one thing, with supplies limited and prices rising, customers get angry at dealers.

“If I now have 15 to 20 cars in stock per dealership,” Mr. Bendell said, “I normally have 200 to 300. Nowadays when a truck comes in with eight cars, by the time they hit the cement pavement, I’m lucky to have one left.”

His stores have even resorted to brokers. “I’m paying $2,000 over sticker price, as a dealer in the Bronx,” he said. “Then the car gets sold 30 seconds later. So we’re paying over list just to get inventory, yet customers blame the dealers for high prices.”

List price or, as it is technically known, the manufacturer’s suggested retail price is a sore spot for Jim Appleton.

“You’ve been selling cars below M.S.R.P. for 40 years,” said Mr. Appleton, a lawyer and president of the New Jersey Coalition of Automotive Retailers, a lobbying group. “All of a sudden M.S.R.P. is this glass ceiling that you can’t break. Well, your expenses haven’t changed. You’ve got 20 percent of the product you would ordinarily get and you have the same cost structure.”

But, he said, manufacturers are happy to let dealers take the blame.

“There’s X amount of profit in the building, and selling of a vehicle and the O.E.M.s, well, nobody knows what they make on the cars that they sell,” Mr. Appleton continued, referring to the original equipment manufacturers.

Mr. Appleton detects the ever-expanding influence of Wall Street and private equity firms behind many dealer woes.

“I step back as a dealer advocate. I am an observer, and Wall Street hates these guys,” he said. “Wall Street hates the millionaire on Main Street, the car dealer. In New Jersey, it’s a $36-billion-a-year industry — 500 rooftops, Main Street businesses. The profits go right back into Main Street causes and Main Street economic development, and Wall Street investors and Silicon Valley investors say: ‘What a shame. You know, we should have a piece of that action. Why don’t we have a piece of that action?’”

One particular cause for concern is the global chip shortage, which is expected to last into 2025, keeping inventories tight. Some attendees expressed concern about the push toward electric vehicles, which require twice as many chips as fossil-fuel-burning autos.

A more optimistic strain of thought on E.V.s was also percolating on the convention floor. Profits from electrics are waiting to be mined, said Buddy Dearman, a Memphis-based managing partner for dealership practice at Dixon Hughes Goodman, an international accounting firm. “I’ve read where 60 percent of customers would plan on taking their E.V.s to their dealership for repair. I think there’s a big opportunity in the service area for E.V.s.”

Dealers today, Mr. Dearman said, garner only 30 percent of the service market. “People take their cars to Pep Boys, they go to AutoZone,” he said. “And I don’t know that they’ll do that as much with E.V.s. If dealers are ready for that, I think they can capitalize.”

Larry Vellequette, a reporter for Automotive News, a trade publication, saw further opportunity in the dealers’ embrace of electric cars and suggested that manufacturers’ infatuation with the Tesla dealer-less sales model may be waning.

“They finally figured out that Tesla’s Achilles’ heel is service,” he said. “When there’s a problem, where do I go to fix it? And how bad does it look when the only way I can get my car fixed is to tweet to the C.E.O.?”

Another persistent concern among those in attendance was the need to hire and retain good employees. One job in chronic undersupply is service technician. Meredith Collins, a director at the consulting firm Carlisle & Company, said demand for such workers exceeded supply by a ratio approaching 5 to 1. Yet, she said, an obvious solution is at hand.

“Less than 1 percent of service technicians are women,” Ms. Collins said, adding that racial minorities are also significantly underrepresented, but not to the same degree.

“For years, it’s been an ignored population, just the assumption of, ‘Oh, women just don’t want to be technicians,’” she said. “So there aren’t any women technicians, and not until recently has there been a lot of attention paid to this fact.” Reflecting current corporate social mores, matters of diversity, inclusion and equity peppered many of the speeches and panels at the convention, even if more than a few dealers were spied rolling their eyes, groaning and yawning.

As long as inventories remain tight, the consensus on the show floor seemed to be, dealers will remain in good shape.

“Dealers are very apt so, when something happens, we’re first to make changes and manufacturers have realized they couldn’t beat it when they’ve tried to own dealerships themselves,” Mr. Bendell said.

Mr. Rosenberg, the longtime New England dealer, struck a note of caution, however. “When Covid hit, a lot of dealers decided that maybe the model needs to change,” he said. “We all started selling cars online, bringing cars to people, doing things that probably we should have been doing for a long time. Now that we sort of have gotten over that and there’s this huge scarcity of products, I see a lot of bad habits developing again.”

He pointed to “dealer addendum stickers,” with highly marked-up add-ons, and dealers charging thousands of dollars over list price.

“Often, dealers won’t deliver vehicles to someone’s house anymore,” Mr. Rosenberg added. “It’s sort of gone backwards because right now it’s a seller’s market.”

Glenn Mercer, a longtime industry analyst with McKinsey & Company before setting up his own research company, takes a more sanguine view. “We can think of the two fundamentally different views of modern automotive new-car retail in the United States,” Mr. Mercer said. “Either the industry’s 125 years old and therefore is ripe for death, or the industry’s 125 years old and that’s because it’s very adaptable. I go for the latter.”