Industry Trends

2023 – Focus on the Need

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Retail automotive dealers are gearing up to face a variety of challenges in 2023. From economic uncertainty, fluctuating profitability targets, changing sales models, and the persistent overhang of compliance regulations, the ‘good times’ for dealers could come to a screeching halt. While some dealers will manage the transition smoothly, others will be caught off-guard. Successful agents will need to be nimble, focusing their client service models on what each dealer needs. A one-size-fits-all model will not work as the industry evolves.

Need for Consumer confidence

Over the past few years, car buyers gravitated towards the vehicle they ‘wanted’, focusing on the features and benefits of the latest models. With a recession looming and inflation rising, car buyers in 2023 are expected to scale back those aspirations and focus on the features they ‘need’ because it’s likely their current vehicle is on its last leg. This transition from ‘want buyers’ to ‘need buyers’ involves a different sales mindset for the dealer. Agents can smooth this transition for dealer clients, by providing the tools and resources they need to tap into those need-based buyers.

For example, F&I managers will need to be prepared to present the value of consumer protection products in terms of saving consumers money throughout the life of the vehicle.  By adding $25 to their monthly loan payment today, the educated consumer could save hundreds – if not thousands – of dollars tomorrow.

This education will also add critical revenue to each dealer’s bottom line. Unlike 2022, record-setting front-end profit is likely to fade quickly as manufacturer production volume increases, new car prices stabilize and used car prices decline. Engaged agents will be in a good position to reinforce the best practices that support back-end profitability. Agents who work with their dealers to sell on ‘total cost of ownership’ will provide invaluable knowledge and quality customer service, resulting in a stabilization between the back and front-end profitability mix.

Dealership Compliance

Agents either need to significantly augment the compliance services they offer or partner with businesses to bolster their compliance offering. Although the Federal Trade Commission delayed the implementation of the amended Safeguards Rule to June 9, 2023, supporting the new IT and network security requirements will take time. Many dealers have adopted a ‘head-in-the-sand approach and will be caught off guard come the summer months. Agents who diligently encourage their clients to embrace the change, and work with them to document, implement, and audit compliant processes and procedures will ultimately save their clients a world of headaches – and costly fines.

Dealership Training & Recruiting

According to the National Automobile Dealers Association, despite continued constrained inventory, the average dealership total sales set a record, topping $71 million in 2021. Total sales for all new light-vehicle dealerships exceeded $1.18 trillion after falling below $1 trillion in 2020, the first year of the pandemic.

Throughout 2022, vehicles continued to be in such high demand that sales departments resorted to merely sourcing vehicles and taking pre-orders. Front-end gross profits were historically high, averaging $5,200 per new vehicle. As a result, a healthy six-figure income required minimal effort from the sales team members.

The picture for 2023 will be quite different. As inventory levels stabilize, sales people will once again be forced to implement sales and customer service best practices, rather than simply serving as order takers. Reduced gross profits will impact paychecks, and suddenly the car sales job won’t be so easy. Dealers unprepared to help their team manage this transition run the risk of higher turn-over, dissatisfied team members, and reduced revenue. Nimble agents who step in with the right training and avert issues before they become a crisis will clearly find success.

Need for Service

While reacquainting sales members with the art of selling, dealers should also look to their fixed ops for valuable revenue.  Agents who focus on what their dealers need will provide solutions to bolster their service drive, including training for process audits, best practices, and a renewed dedication to customer service when conducting every-day tasks like setting up an appointment or providing estimates.

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