lower short-term interest rates should reduce floor plan interest expenses, enhance cash flow and earnings, and ultimately benefit organizations financing commercial real estate projects and franchise acquisitions through debt.” “Broadly speaking, dealers who learned from the pandemic are better off,” says Smith. “Dealers that have systematically applied operational improvement lessons and embedded efficiency into their organizational DNA are outperforming peers.” During the pandemic, buyers demanded enhancements to the digital buying experience, and auto retailers offered them. Skordeles said, “Digital buying forced familiarity with technology, tools, apps and CRM systems that allowed dealers to hold less inventory and generate more cash flow. Dealer operations have become far more sophisticated and are being operated with greater discipline.” Strand added, “The latest inventory optimization and management software lets dealers take a more scientific approach. Retailers can easily track what they’re holding onto and better manage acquisitions, pricing and margins.” OEMs’ Approach to the Market Strand believes that new-car production levels will remain flat in the short term. “Without greater vehicle affordability, it’s hard to see production returning to pre-pandemic levels.” Skordeles added that tariff pressures and the risk of supply chain disruption will be part- and OEM-specific. “The supply chain is massively complex. OEMs aren’t going to figure out how to build cheaper cars or de-contented trim levels by mid next year,” noted Strand. “Incentives have been running 7.5-8% of average transaction prices,” continued Strand. “The ‘air gap’ in sales in the fall has created some slack — very brand specific — with needed incentives to move product. Some OEMs have been eating tariffs and would like to pull back discounts to protect margins. Raising prices will attract the wrong kind of attention. Throttling incentives may be the least bad answer.” Competing for Supply in a Tight Used Car Market “New cars are the used car ‘factory.’ It takes three to four years for a lease to work its way into the used vehicle supply,” said Strand. “Today, one in four new vehicles is leased, whereas pre-pandemic, it was one in three. Fewer leases contribute to the tight supply market for used and Certified Pre-Owned (CPO) cars.” Strand added, “We are fundamentally limited on the supply of used vehicles, about 8 to 9 million units short in the 5-year-old and less segment. We are nowhere near generating enough used car supply to move the market. That means used car values and prices should hold stable for the foreseeable future, and that should make room for more leasing, maybe on shorter terms.” Competition is fierce for the cream of the used car crop. Per Strand, “Players like CarMax and Carvana are aggressively sourcing vehicles directly from consumers. And traditional dealers have also gotten into the game of direct purchase. Smaller and mid-sized dealers may find themselves short on inventory and in a tough spot competitively.” Strand continued, “The customer experience is more important than ever. Develop loyalty by maintaining strong customer relationships with a lifetime-value mindset. Do it in the service lane. With vehicles in short supply, you might want to resell that car in the future, so you want them to come back. Emphasize delivering a great customer experience at every touchpoint, with transparency and responsiveness. You don’t want them leaving your dealership feeling unappreciated or neglected and wanting to sell their car to someone else.” Finding Their Footing in the EV Market Expect 2026 to be a reset year with many, but not all, automotive manufacturers pulling back from EV investments. Producers are still trying to figure out how to absorb tariffs and rebuild more resilient supply chains while profitably building vehicles. With so many buyers priced out of the EV market, manufacturers must determine what kind of product they can build to bring back entry-level buyers. Strand predicts, “The big story for 2026 will be around used EVs. Under the tax credit scheme, only leases really made sense. As those leases are returned, we expect a few million EVs to hit the market over the next three years. We’re not sure what values will look like, but these cars may be affordable enough to entice some reticent buyers off the sidelines. These returns would create a new opportunity for millions of EV-wary buyers to set aside their apprehensions and experience driving an EV at a very attractive price.” Without tax subsidies, EV adoption will be an uphill climb for the foreseeable future. EV and even plug-in hybrid production are being de-emphasized. Full-size EV pickups have largely failed in real-world use cases due to range, charging access and the challenges of rural operation. The center of gravity is shifting back towards traditional hybrids as a bridge technology. For now, internal combustion engines will remain the king of the road, in part because they are generally cheaper to build, and affordability is key. Truist Bank, Member FDIC. © 2026 Truist Financial Corporation. Truist, the Truist logo, and Truist Purple, are service marks of Truist Financial Corporation. Equal Housing Lender. Michael Skordeles is an Investment Advisor Representative, Truist Advisory Services Inc. Comments regarding tax implications are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences. 23 ILLINOIS AUTOMOBILE DEALER NEWS
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