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Economy

Mid-Year Economic Indicators Guide 2022 Planning

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The midway point for 2021 is in the rearview mirror and many dealership owners and managers are knee-deep in planning for 2022. Now is the perfect time for a quick review of the mid-year economic indicators. While new model retail sales are trending up and used vehicle prices are hitting record highs, there are some broader market trends which should be considered.

Supply chain issues impact sales forecast

According to NADA, new light-vehicle sales are expected to reach 15.5 million units for 2021, representing a 7.2 percent year-over-year increase.  Fitch Ratings expects vehicle sales to return to 2019 levels in 2022/2023. However, IHS Markit and Wards Intelligence do not expect the U.S. to see 17 million light-vehicle registrations annually until 2025. This market skepticism is fueled by supply chain issues and a persistent semiconductor shortage. General Motors, Fiat Chrysler and Ford have all felt the impact on production, and analysts believe the semiconductor chip shortage will reduce new vehicle production by 1.28 million.

While dealers have experienced the vehicle shortages first hand, one bright spot is the strong trend toward online sales which were bolstered during the 2020 shutdown. Consumers increasingly became more comfortable completing more of the vehicle purchase process online. This has allowed dealers to stay in the game even with the persistent production issues as the online sales model is perfect for a vehicle order rather than immediate delivery.

However, in-person buying remains a preferred way to buy for 71 percent of U.S. consumers. According to the 2021 Deloitte Global Automotive Consumer Study, 59 percent of consumers who prefer a virtual sales process also prefer interacting with a dealership. Many consumers continue to be wary of the digital sales process, afraid of being taken advantage of when they are not physically in the store.

Financial scorecard is mixed

There is good news and not-so-good news on the financial front heading into the second half of 2021. In 2020, U.S. consumers saved $1.6 trillion as they hoarded paychecks and stimulus money. In 2021, the personal savings rate in March was 26.9 percent of disposable income. In June 2021, that rate dropped to 9.4 percent, according to the U.S. Bureau of Economic Analysis. Easing COVID restrictions, improved consumer sentiment, and growing employment numbers have spurred consumers to spend on services and experiences.

However, as we’ve seen with the used car market, inflation could dampen the consumer spending frenzy. According to Deloitte’s baseline economic forecast, core consumer price inflation could remain at 2 percent or higher over the foreseeable future. With the current unemployment rate at 5.9 percent, continued labor market issues are impacting both consumers and employers. Spikes in virus outbreaks are also slowing consumer willingness to return to many frontline jobs, meanwhile businesses are struggling to fill open positions.

Given these economic indicators, what should a dealer principal consider when planning for 2022?

  • Maximize profit at every turn – while it’s tempting to maximize profit on the front-end of the deal, it is bad business to inflate prices to the point where no profit can be made on the back end. Work with your sales and finance teams to encourage a healthy balance between both sides of the deal. This will ensure that every penny that can be made, will be made.
  • Keep your lenders close – customers who have a gap in employment or higher debt due to medical costs can still be great customers if you have the right lender to seal the deal. Interest rates are still low and lenders with strong reserves are looking for the right opportunity.
  • Shore up your training – the industry is changing fast, and your team needs ongoing training to keep up with those changes, especially in the areas of online sales and compliance. Consider equipping your team with ongoing training options that include both in-classroom and online training to fit within their schedule and your staffing needs. This will help keep your team members ahead of the curve without disrupting your sales numbers.

With more than 40 years of experience helping dealers achieve their profitability goals, EFG Companies knows what it takes to help you succeed in the coming years. Contact us today to learn more.