As profits level off from the end of 2020 through 2021, COVID “Boom” and begin to decline back to the mean, it is important to revisit the many ways automobile dealers can be impacted by rapidly changing market conditions.
Automobile dealers face a variety of risks that are, for the most part, out of their hands. These issues can impact their business operations, profitability, and long-term sustainability. Some of the risks include, but are not limited to, the potential for an overall economic downturn coupled with rising interest rates, the continued pressure of the coming wave of electric vehicles, and competition from virtual sales.
An overall economic downturn can lead to reduced consumer confidence and discretionary spending, resulting in a delay or a complete cancellation of plans to purchase a new or used vehicle. Consumer decisions like these impact overall car sales and dealership revenue on a monthly and annual basis.
Inventories are creeping up, and the recent days of most vehicles being sold before they are even on the lot are going away. Practice selectivity when deciding what to have in stock and what you are ordering, buying, and trading. The used car market can experience wide fluctuations, oftentimes from week to week. Don’t hesitate to dump something that has changed in value. Free up the cash and find something more in line with the current market.
Utilize data analytics and historical sales trends to optimize your inventory management. Regularly evaluate which models are popular and adjust your inventory accordingly. Diversify your product offerings for both new and used vehicles across various price ranges. What is the average cost of the used vehicles you are selling? Is the mix appropriate for the changing environment as discretionary spending for consumers tightens? Remind and retrain your sales force on how to sell a car. It has been very easy in the past few years for the sales force to sell, but that was not sustainable. Constantly remind your teams about the importance of customer service. Consumers will have more and more options, so store loyalty is paramount. While focusing on the front end is important as the days of selling above sticker wanes, it is equally important to focus on fixed operations. Customer satisfaction on the back end will be ever more important as consumers begin to hold their vehicles a little longer.
The recent dramatic rise in interest rates impacts both the automobile dealer as well as the consumer. To reiterate this point, tighter control over inventory levels is key. The cost of holding inventory is on the rise. Floorplan interest expense is coming back as a real cost to dealers. Revisit the terms of all your financing arrangements, not just your floorplan agreements, to understand what and when balloon payments are coming due and or when you may have an interest rate adjustment. Start to plan for that potential increased cost today. On the consumer side, changing economic conditions can affect the customers’ ability to secure favorable financing terms, leading to smaller gross profits or a complete loss of a sale.
Revisit relationships with multiple financing partners to provide a range of options for customers with varying credit profiles. Ensure finance managers can educate customers about their financing options and properly assist them in finding suitable solutions. Also, revisit the dealership’s procedures for assessing the creditworthiness of customers to mitigate the risk of defaults and repossessions.
Electric vehicles and their overall impact on the auto industry has been in the news for many years now, although the pace has been picking up significantly with all manufacturers rolling out their own versions of EV vehicles and comprehensive plans to get to market. Advances in automotive technology related to electric vehicles and autonomous driving require dealerships to adapt and invest in new training and equipment. Stay informed about emerging technologies and provide the appropriate training to your sales and service teams to ensure they can effectively communicate the benefits of new features to customers.
The threat of online competition on the traditional car sales model is certainly not a new threat; however, it remains quite relevant. The ease of car shopping from a handheld device enhances the lure of online car-buying platforms and third-party websites that can divert customers away from traditional dealerships. The younger generation of car buyers can do everything else from their smartphones so why should purchasing a vehicle be any different? Work with marketers and website designers to enhance your online presence and be search engine optimized. If you are not on the first page of a search, the likelihood of traffic coming to your website is reduced significantly. Ensure your website is user-friendly with detailed vehicle information and easy-to-use search tools. Consider offering online sales options and providing transparent pricing information. When was the last time your website was refreshed? How does your website look on a handheld device, and is it easy to navigate?
When is the best time to fix a leaky roof? Certainly not when the hurricane hits. Be proactive now so there is a softer landing as things begin to turn.
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