Industry Trends

Chances Are You Need Inventory?

These days, retail automotive dealers are getting a refresher on supply and demand economics.

On the supply side, the pandemic-induced slow down put a crimp on the volume of new vehicles as factories shut down and parts suppliers faced significant shipping challenges. In April 2020, a record low 103,000 new vehicles were manufactured. By contrast, a little over 2 million vehicles were built in January 2021 and Edmunds forecasts that 15.5 million new cars will be sold in 2021, a 6.5 percent lift compared to last year. New vehicle manufacturing is clearly back on line, yet some glitches will remain as the supply of certain semiconductor chips and electronic components are still scarce.

On the demand side, new car prices are skyrocketing. In December 2020, the average transaction price for a new vehicle hit an all-time record high of $40,573. These rising prices are driving many people out of the new car market, forcing people to look elsewhere for a vehicle. The used vehicle market is also experiencing pricing challenges. According to the Manheim Used Car Index, Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased 3.79 percent month-over-month in February. This brought the Manheim Used Vehicle Value Index to 169.2, a 17.9 percent increase from a year ago and a record high for the Index. For high-demand vehicles such as SUVs and pickup trucks, the price jump is even higher.


On The Hunt For Talent

Good news! The retail automotive industry just notched the strongest March sales in 20 years! According to J.D. Power, first quarter retail sales climbed 26 percent, a 70.7 percent increase as compared to March 2020. A few other indicators climbed as well. The average price of a new vehicle rose to $37,314 in Q1, nearly $3,000 more than in 2020. Retail profits from new vehicles are also expected to reach record levels of $2,225 profit per unit, up $786 from 2020. Analysts at J.D. Power forecast that March will likely be the second most profitable month on record as total retail vehicle purchases trend towards a total of $48.0 billion.

These indicators clearly signal a positive trend for the first half of 2021. But there is a potential wrinkle. Will you have enough staff – and the right staff – to support those customers driving cars off the lot? People are a dealership’s greatest asset – and often its greatest challenge. In an EFG study conducted among retail dealers across the U.S., 65 percent of respondents said recruiting and hiring high-quality people was their number one challenge.

Every dealer and general manager has made a poor hiring decision in the past, and chalked it up to “we’ll do better next time.” But what did that decision cost you? Our research found that every Poor Hiring Decision® (P.H.D) cost the dealership $75,000!


Springtime Boosts Consumer Confidence. Dealers, Stay Cautious!

For much of the country, the sights and sounds of spring have begun. This year, those green shoots of renewal come with an extra boost of optimism. Temperatures are warming, vaccine distribution is rolling out, and COVID-19 cases are trending down across much of the country. A third round of stimulus checks and income tax returns are hitting consumer bank accounts. Other signs of economic recovery are also evident, including a February rise in total nonfarm payroll employment by 379,000, largely attributed to gains in service and hospitality jobs. The Conference Board Consumer Confidence Index for February continued its upward rally, reflecting consumer’s general optimistic outlook.

With all of these positive economic signs, the retail automotive market should be primed for a great spring. But there are two sides to the story, both hinging on inventory of new and used vehicles. With caution, dealers will need to closely monitor both sides of the equation, as well as listen closely to buyer attitudes to capitalize on the positive trends.

New vehicle inventories are facing an unusual challenge. While factories have returned to work, pandemic-related global supply chain challenges are hindering parts availability. From plastics to semiconductor chips, manufacturers are left trying to source substitute parts, or simply waiting for deliveries. Dealers who are normally looking for space to house new vehicles at this time are faced with too few units. Consumers flush with extra cash are forced to either wait for their car of choice or pre-order vehicles months in advance. A recent Wall Street Journal article characterizes the situation well, indicating the forecasted retail automotive rebound is being hamstrung by situations thousands of miles away.