Industry disrupters, like Carmax and Carvana, are forcing dealers to redefine their sales process and customer service models. We’re already seeing dealers try on different sales models, including having one person own the sales process from cradle to grave. Now, they’re implementing more technology in the F&I office to speed up the process and ensure better compliance. And, we’re seeing dealers broaden their promotional service offerings to include more complimentary services, like car washes, courtesy vehicles, and door-to-door pickup and delivery.
By and large, the industry expects to see continued flat new unit sales in 2020 with rising pre-owned unit sales. Basically, what you’ve seen the last two years is what you will most likely see next year, with one caveat – next year is a highly political year. We all know that political years can have dramatic affects on the auto market. No matter which party wins, uncertainty in the economy will be high through most of the year. We’ll probably see a rollercoaster of ups and downs, but will most likely net out at nearly the same levels as 2019.
As we’ve seen over the last few years, agents are evaluating how to restructure their agencies to better serve their dealer clients and support a larger dealer book of business. It’s become clear that the true differentiator for agents is transparency, partnership, and engagement. However, creating a business culture around these values takes more than a pep talk. We’re seeing agents invest heavily in training for their own teams, as well as training for their dealership partners.
In recent years, local credit unions and banks pulled back from direct auto lending, focusing more of their auto loan efforts indirectly through dealers. However, with increased regulations and pressure to increase dealership margins as much as possible, lenders have seen their profit margins shrink. They’ve now found that they can make more money in a direct lending model. Of course, direct lending has its challenges, namely the ease with which dealers flip customers to secure funding with them instead of their local credit union. Going forward, we’ll see lenders become more strategic with their value propositions and customer service training to retain direct auto lending business. This includes evaluating their loan value-adds, such as consumer protection products, and investing in additional loan officer training.
Just as used car sales continue to increase, so does the investment in the independent space. We’re seeing more used car directors from franchise dealers recognize the opportunity to be their own boss and make more money by opening an independent store. At the same time, those larger independent chains are evaluating how to continue on their growth trajectory by acquiring more rooftops. The caveat to this growth is the auto lending space in the independent market.
It’s been a decade since the bottom fell out of the powersports market. Every year, for the last ten years, powersports dealers’ top priority has been to return to pre-recession sales levels. Now, dealers have recognized that the industry has a new normal for unit sales, and it is significantly less than those levels from the 90s and early 2000s. Since unit sales can no longer be the driving force for powersports dealership profitability, we’re seeing dealers re-evaluate the dealership business model.