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Economy EFG Companies Industry Trends

No Longer A Seller’s Market

While the industry bemoaned the vehicle production challenges over the last few years, dealers were able to sit back and let the sellers’ market work in their favor. Now, with new vehicle production ramping up and the market stabilizing it’s time to use a different approach. For a dealership to continue to see a sustainable level of profitability for the remainder of 2023, dealers must focus on returning to customer service best practices for both sales and the service drive.

The first half of 2023 saw a surprisingly strong new vehicle market as the available inventory issues resolved. For the most part, a heavy push of fleet sales and a resilient, prime-rated, U.S. buyer overcame high prices and record auto loan rates. However, according to Cox Automotive’s Chief Economist Jonathan Smoke, the second half of 2023 will likely not have the rosy sales experienced earlier in the year. “I do not believe we are on the cusp of exciting growth ahead. The market will still be limited by total available supply, but demand will also be limited by the level of prices and rates, which are not likely to come down enough to stimulate more demand than the market can bear.”

In fact, the first glimpse of this decline began in May as new vehicle inventory reached its highest level in two years and interest rates on auto loans continued to climb. May’s average listing price ended the month at $47,172, approximate four percent higher than a year ago. The average transaction price (ATP) for May increased a scant 0.5 percent from April to $48,528, up $251, according to Kelley Blue Book, a Cox automotive company. While Cox Automotive has increased its 2023 new-vehicle sales forecast to 15.0 million, a gain of nearly 8 percent from 2022, the company expects “headwinds will grow in the second half of this year as credit availability and unfulfilled demand become scarcer.”

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Dealership Training

Is Your Team Made Up Of Order Takers or Sellers?

Dealerships and salespeople alike have reaped the benefits of healthy profit margins over the last few years. However, just as the margin pendulum swung deep into seller’s market territory, it’s beginning its backward trajectory into a buyer’s market.

While inflation and lack of inventory have kept vehicle prices high. Interest rates, climbing debt, and lack of affordable vehicles are pressuring more consumers out of the market. According to Experian, during the first quarter of 2023 the average APR for prime consumers fell between 6.40 percent for new vehicles and 8.75 percent for used vehicles. Think about that for a second. If a prime consumer can’t get a rate below 5 percent, what does that mean for nonprime and subprime consumers?

As of 2021, Experian reported that nearly one in three Americans had a subprime credit score. So approximately 33 percent of your customers don’t qualify for an 8.75 percent APR. Their range spans from 8.86 percent to 21.32 percent. On top of the APR issue is rising debt. Because consumers purchased both new and pre-owned vehicles priced well above historical norms for the last three years, those three-year-old consumers are returning to dealerships with significantly less of their auto loan paid off. According to Edmunds’ fourth quarter data from 2022:

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Data Security

Safeguarding Your Data

The Federal Trade Commission (FTC) Safeguards Rule goes into effect June 9, 2023. Did that date sneak up on you? Will your dealership be compliant, or is your team still trying to figure out what IT upgrades are needed to secure private customer data? Let’s breakdown the Safeguards Rule, see how it impacts your dealership and outline steps to consider while working on this compliance initiative. If you’d like another source of information to share with your team, check out EFG’s latest F&I Talk Outside the Box podcast.

Originally enacted in 2003, the FTC amended the Safeguards rule in 2021, but extended the deadline for compliance to June 9th of this year, giving dealerships more time to incorporate the needed equipment and procedures. Specifically, the new requirements include:

  • Designate a qualified individual to oversee your information security program.
  • Develop a written risk assessment.
  • Limit and monitor who can access sensitive customer information.
  • Encrypt all sensitive information.
  • Implement ongoing security personnel training.
  • Develop an incident response plan.
  • Perform periodic assessments of service provider security practices.
  • Implement multi-factor authentication, or another method with equivalent protection, for any individual accessing customer information.

That’s a lot to absorb! Let’s focus on the key component of data security.

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