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.
Optimize Trade-In Opportunities
With these supply-and-demand factors in play, how does a retail dealer maximize deal potential and target good trade-in opportunities? Optimized trade-in deals can work wonders in these pandemic days, meeting the needs of customers, boosting inventory, and leveling the retail playing field.
While stimulus money is easing near-term financial worries for many consumers, much of that money will be targeted toward paying off debt, delinquent rent, and other expenses incurred due to lost employment income. Educate the customer that their trade-in vehicle has value which can be applied toward their next vehicle. Contact recent customers and discuss their current situation. Do they need a different size or a different type of vehicle? Capture details on the trade-in remotely and provide trade-in options that get them closer to the sale.
Maximize Off-Lease Inventory Opportunities
Promote your remote or online sales models, and customer-first trade-in deals. Work with your captive lender to see how you can generate more lease-end vehicle returns by allowing qualifying customers to end their lease early. Speaking of leasing, another option to improve inventory is working with local leasing and rental companies to sell off-market vehicles. Lease terms on these vehicles ending throughout the year can provide a steady flow of new, highly-valued inventory. These vehicles also might qualify for certified pre-owned protection packages, further increasing their value to the dealer as well as the customer.
Even with the economic outlook improving, consumers in the market for a new vehicle are interested in maximizing the deal. Make sure the sales team is well versed on the right approach to sell each type of vehicle – new, customer trade-in or off-lease. With inventory tight and limited options for buying the vehicle they want, the challenge dealers face now is no longer about competing with the dealership down the street, but rather convincing customers to get off the fence and purchase their next vehicle now.
Differentiate Your Inventory
To ease customer concerns, think beyond trade-in and price negotiations to the finance office. What protection products do you provide to give customers confidence in their next vehicle purchase? For example, promoting a product like WALKAWAY® Vehicle Return Protection can ease customer concerns about making their monthly vehicle payment, knowing that if they lose their job, they can return the vehicle with no impact to their credit.
Stop chasing inventory and start raking it in by convincing customers that your dealership is the place to go by providing good trade-in incentives, and boosting consumer confidence with consumer protection products that meet their current and future needs.
With more than 40 years of experience helping dealers profitably navigate changing markets and consumer buying habits, EFG Companies knows what it takes to ensure your success. Contact us today to get started.