The economic picture has certainly looked relatively good for the last few years. Unemployment is at record low levels and companies report continued hiring. However, wages remain mostly flat and the Federal Reserve just issued a quarter-point interest rate hike. A potential trade war could also bring a serious cloud to our sunny economy.
In addition, there lies a very troubling and widening gap in wealth in this country. According to data from the Pew Research Center, the median upper-income family (those who make more than $127,600) now holds 75 times the wealth of the median low-income family (those who make less than $42,500). To give some historical perspective, in 2007 the upper-income family was worth 40 times as much as the lower income family. In 1989, the multiple was 28. To put it another way, the top 1% of US wage earners now holds 38.6% of the nation’s wealth, up from 33.7% in 2007. The bottom 90% now holds only 22.8% of the nation’s total wealth, down from 28.5% in 2007.
Some in retail automotive might perceive this widening gap as good news. More wealth can mean more auto sales, or at least more luxury vehicle sales. But, let’s add some perspective to those numbers.
According to FORBES, despite being the largest generation in the workforce today, Millennial salaries are 20 percent lower than Baby Boomers’ salaries when they were the same age. Their unemployment rate is twice the national average, and according to CNBC, their student loan monthly payment hovers just under $400.
Now, think about this. In less than two years, Millennials will be the largest consumer market for new car purchases. But, when you think about the income disparity, student debt crises, etc., it’s clear that this demographic is at risk of being priced out of the vehicle market.
These consumers can’t afford a significant strain on their budgets, as the 2017 Federal Reserve Board of Governors Report of the Economic Well-Being of US Households illustrates. According to the report, four in ten adults would either borrow, sell something or not be able to pay if faced with a $400 emergency expense. This metric has improved slightly since 2013 but it is still very disheartening. Eleven percent of respondents said that incurring a $400 emergency expense would cause them to default on at least some of their regular monthly bills.
Now, consider the cost of an average car repair of approximately $750. This can significantly increase for repairs on a vehicle’s engine or transmission to upwards of $1,000. If a consumer can’t even afford a $400 emergency expense, they could be in significant financial straits if a $1,000 expense landed on their budget.
Regardless of economic wellbeing, these numbers speak to the majority of car-buying consumers. Review these numbers with your customers, clearly explaining how vehicle protection products protect their investment and their household budget. In exchange for adding a small amount to the monthly payment, your customers can avoid a traumatic financial experience.
Leverage your service bay team and generate a common list of repair expenses. Include everything from tire replacement to major engine issues. While everyone believes nothing bad can happen to them, breakdowns do happen and repairs are needed. Transparency is key in these scenarios. By clearly demonstrating the anticipated expense of various repairs, your dealership team shows consumers that you are committed to keeping them safe on the road. Vehicle protection products can mean the difference between an annoyance and a $400 repair that financially derails a family.
While you might see this relevant information pass your desk on a daily basis, how often do you think your F&I managers may see it or utilize it with their clients? By taking the time to share, discuss, and create a game plan on how to use this valuable data, you have the opportunity to set them up for success in meeting your dealership’s profitability goals.
At EFG Companies, we apply our more than 40 years of retail automotive experience within our training curriculum to maximize operational efficiencies, enhance customer service, ensure complete compliance and drive more sales. Our AFIP-certified client services team works with dealership management to equip their team with everything they need to succeed, from developing closing strategies based on industry and consumer trends, to working with their lenders to create a synergistic partnership. Contact us today to put our training to work for you.