In the ever-changing world of automotive sales, the road to success is full of twists and turns. As we navigate further into 2023, the automobile industry is once again witnessing shifts that demand our attention. The industry is in a state of flux, presenting both uncertainties and possibilities. We’ll explore these car industry trends and their implications on dealership profitability.
As we navigate these trends and dissect their implications, one thing becomes clear: adaptability and innovation will be the keys to success in this evolving automotive landscape. Buckle up as we explore these trends in detail and uncover strategies to steer your dealership towards profitable horizons in this changing market.
1. Growth in New Vehicle Inventory and Sales:
The engine of the automotive industry seems to be revving back to life, fueled by pent-up demand. Throughout August, the total U.S. supply of available unsold new vehicles climbed to a level not seen since April 2021. As per Experian report, the new registration volumes are steadily on the rise, reaching 7.7 million, marking a remarkable 13.2% increase from the previous year. The pent-up desire for new vehicles is palpable, and this resurgence is breathing new life into dealership showrooms. But while this is a promising development, it’s not without its challenges. The increased demand for new cars is just one part of the puzzle, and the declining used vehicle market demands equal attention.
2. Used-Vehicle Supply and Sales Drop:
As the new car market gains momentum, the used vehicle market has encountered rough terrain. Cox reported, total supply levels are reminiscent of 2021, but down by 10% from the previous year. Used vehicle registrations continue to decline, with volumes plummeting by 3.6 million compared to 2021, a 2.5% drop from the prior year as per the above Experian trends. The tight inventory to sell and lower sales figures present dealerships with a conundrum. Considering this, it’s imperative for dealerships to explore innovative strategies to bridge the profitability gap. One practical approach is to offer Finance and Insurance (F&I) products that provide tangible value to customers and higher profitability to dealerships. Additionally, diversifying revenue sources across a broader customer base can reduce reliance on a few high-margin sales, ensuring a more sustainable and profitable future.
3. Vehicle Pricing and Affordability Gap:
In today’s automotive landscape, the road to vehicle ownership has become a challenging journey for many households. In their report, Cox highlighted that the average payments have surged significantly by 23-39% since 2019, leaving prospective buyers pondering their financial capabilities. The affordability gap has widened, and the dream of owning a new vehicle might seem distant. As we grapple with these pricing challenges, there’s a need for a thoughtful approach to empower consumers.
This approach goes beyond the vehicle price tag; it delves into the realm of Finance and Insurance (F&I) products. These products serve as more than just an additional expense; they are a protective shield. By carefully guiding customers through these offerings, F&I teams help buyers understand how these products guard their investments against costly repairs and potential financial setbacks in the future. This perspective shift helps shoppers appreciate the value F&I products offer. They become more inclined to explore these offerings, knowing that they are not just expenses but strategic safeguards for their automotive investments.
4. Potential in Servicing Vehicles Within the Sweet Spot:
Amid these changes, Experian data shows there’s a promising sweet spot within the automotive landscape. Over 36.1% of all vehicles fall within the “Sweet Spot” (Model Years 2012 – 2018), marking a 4% increase from 2022 and a staggering 22.8% rise since 2019. This segment represents a substantial portion of the market, with over 103 million vehicles within this range. It signifies an active demand from a significant portion of customers seeking tailored solutions for their cars. By focusing on this specific segment, dealerships can position themselves as solution providers for maintenance, repairs, and additional aftermarket services. Sweet spot vehicles often require higher service and maintenance, presenting dealerships with an opportunity to generate a consistent revenue stream and offset the challenges in profitability.
At PRO, we’ve been championing dealership success for over three decades, and car industry trends in this evolving economy is just another chapter in our journey. We’re here to partner with you, offering expertise and support to boost your dealership’s profitability. Reach out to us today, and together, we can steer your dealership towards a profitable and successful future.