New Car Prices Are at Record High: How Does This Impact Dealerships

car on cash pile

Affordability declined to a new low

New car prices are at recorded high. As per the COX Automotive and Moody’s analytics, new vehicle affordability declined to a new low on the affordability index this June. In other words, weeks of income needed to buy a new light vehicle rose to 37 weeks compared to 35.5 in May. 

cox auto affordability

Source: Cox Automotive

In July, the average new car in the U.S. carried a sticker price of $41,263. As you may know, the reason is the worldwide shortage of microchips that slowed the production of cars. The average sticker price of non-luxury vehicles rose by $353 in June.

High new car prices do not necessarily mean low affordability:

An increase in vehicle prices does not necessarily imply cars are becoming less affordable. A rise in wages and stimulus checks can mean that people could have more money to spend even though prices have soared.

The average financing rate decreased. It led to offsetting some inflation and consequently prevented limiting what otherwise would have been an even higher rise in the monthly payment. 

Opportunity for dealers:

This situation presents an opportunity for dealers to sell more products to add value to the purchase. When customers pay a high price to own a vehicle, they want to protect their purchases against mishaps such as theft and appearance accidents. Therefore, offering products such as GAP and appearance protection (CilaJet) could reduce out-of-pocket ownership costs. In addition, it may improve the price-to-value relationship for the buyer.

Furthermore, products like these will help guard against the threat of negative equity when the market moves back to normal.

gap deficiency chart

GAP deficiency chart

Additionally, GAP is guaranteed asset protection, a product that covers a car buyer’s negative loan balance in the event of total loss from theft or collision. Insurance companies only pay the actual cash value (ACV) of the vehicle at the time of loss. Without GAP, consumers can easily be left owing thousands of dollars on their loans.

Your value: The agent notifies you of total loss claims, creating a sales retention opportunity. Underwritten by Virginia Surety, an “A” rated insurer.

Your customers’ value: Insurance deductible covered up to $1000.00 Benefits paid up to $50,000.00. Protection is provided for loan terms up to 84 months, lease up to 60 months.

How you sell it: Create needs awareness. Used vehicles are selling at premium prices and are at greater risk for depreciation. In the event of a total loss, the insurance company may not cover the difference between what consumers owe and what the vehicle is worth at that time of loss.

Benefits of GAP to customers and dealerships

The current market conditions are against the car buyers. For instance, if a customer buys a new car today, the prices could drop about 25%, and then the customer would have negative equity. Explaining this to your buyers would help them understand and value GAP and address their resistance or objections to buying it.

To emphasize, it is also possible that the average length of the trade cycle, i.e., the amount of time people keep their cars. Thus, putting people in a position to have a dealer with repairs and maintenance that they might avoid with a shorter trade cycle.

It brings in another opportunity for dealers to help their customers manage repairs and maintenance smoothly. You may offering multiple High Mileage Programs available on any vehicle, covering those with over 100,000 miles. Consequently, it would provide much needed peace of mind to your customers. It includes Roadside Assistance, rental benefits, and trip interruption for the entire term of the contract.

In addition, prepaid maintenance would be valuable for customers as well as the dealers. It will bring the customers to the dealership and provide dealerships with additional ways to engage with customers and create the possibility of a second sale. Not to mention, more opportunity for trade-ins, which is highly important in today’s market condition.

To conclude, dealerships could find opportunities amidst an unprecedented state of inventory shortage which led to high new car prices and low affordability. Offering F&I products such as GAP and Cilajet would increase the price-to-value relationship for the customers while protecting their purchases. We can provide you with custom product packages and training to sell more products. Reach out to us today to get strategic solutions for your dealership.

Share This Post