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Are Today’s Vehicles and Buyers Mismatched?

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Contributing Author: John Stephens Executive Vice President EFG Companies
Contributing Author:
John Stephens
Executive Vice President
EFG Companies

On October 3, General Motors made an announcement that many in the retail automotive space had been anticipating.  GM reported a 12 percent year-over-year increase in total sales in September to 279,397 units, driven by a 17 percent increase at Chevrolet and a nine percent increase at GMC. Crossover deliveries were up 43 percent and trucks were up 10 percent. Passenger cars were down 11 percent. Retail deliveries, which accounted for about 80 percent of sales, were up eight percent for GM’s best September retail performance since 2007. Not to be outdone, Ford Motor Co. said its sales rose nine percent, with a 21.4 percent increase in its F-150 pickup truck.

Some of this strong growth can be directly attributed to the recent natural disasters from Hurricanes Harvey and Irma. Economist Jonathan Smoke at Cox Automotive has said that 600,000 vehicles lost to the hurricanes in Texas and Florida will need to be replaced. Sales prompted by prior weather disasters generally increase within two months of the start of the recovery.

But there is more to this story. While truck sales have surged, passenger cars are down across the board, minus Toyota whose sales rose 15 percent thanks to the redesigned Camry sedan. So this begs the question – why are car sales stalled? Car manufacturers continue to throw money at the problem, offering incentives of over $3,500 per vehicle. Could the retail lot inventory be mismatched for consumer demand?

Wrong Supply for Current Demand

J.D. Power’s Thomas King commented at this year’s NADA/J.D. Power Automotive Forum that vehicle production was not aligned with consumer demand. Manufacturers produced more sedans when buyers were in the market for crossover utility vehicles (CUVs). Because of this, half of all auto brands, and six out of 10 vehicle models lost sales volume in Q1.

CUVs and pickup truck sales continue to lead all other vehicle types across the board. With gas prices charting at $2.50/gallon or less in most states, consumers are less apt to feel a fuel pinch in the wallet. OEMs have also responded to federal fuel economy regulations, producing vehicles with improved local and highway miles-per-gallon (MPG) ratings. These improvements have prompted the first-time car buyer to go big. Age-wise, Millennial buyers are at the height of their expanding family years, and they often plan to keep the vehicle past the pay-off point. Instead of having a starter car, these 20-to-30+-year-olds are buying their first vehicle to grow with them.

Customers are getting younger as well. Recent research fielded by the Sensis Agency and Think Now Research tracked the purchasing habits of Gen Z – those born between 1995 and 2005. 75 percent of all respondents plan to purchase a car at some point, and 69 percent of them will save until they can afford one.  This is a frugal demographic with 57 percent of males indicating they were actively saving to purchase a car, while only 39 percent of females were in car-saving mode. When they do purchase, over 60 percent of both males and females say brand will play a role in their decision. Will they find the right automobile for them?

Helping Consumers Find the Right Vehicle

This supply/demand dichotomy provides a great opportunity for the savvy dealership.  While you are intimately aware of every vehicle on your lot, your customer is likely a 40-year-old or younger first-time buyer. Take a look at your lot from their point of view. How does your inventory stack up? Are you marketing the vehicles they want – or the ones you have?

If you are in an area impacted by this summer’s hurricanes, your customer is likely short on cash and long on need. Getting any vehicle is probably their driving motivation. But this sense of urgency can be tempered by asking a few questions and putting together a deal that meets their transportation and financial needs.

Are both your sales and F&I teams conducting thorough customer interviews?  There are distinct differences in consumers younger than 40-years-old, 40-years-old and older, and those still reeling from a crisis. Make sure you’re asking the right questions – and providing the right answers.

When you’re asking those questions, understand that while relationship is important to these buyers – TIME is the ultimate influencer. Set time expectations before each portion of the process and stick to those expectations. Your customers will feel like their time is valued and will more likely have more patience for those more time-consuming portions of the car-buying process.

There are many tools available to meet the needs of your customers. Know your current inventory, F&I products – and know your customer profiles. While you can’t solve issues caused by natural disasters, you can be the trusted solution to meet their needs.

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