Without a doubt, 2020 has been one of the most challenging years many of us have ever experienced. Yet, I am optimistic that 2021 will bring some sense of normalcy. It will take some time but I truly believe that when we reach the end of next year, we will all breathe a collective sigh of relief.
There have been some bright spots this year. Industry analysts report that 2020 is on track to be an all-time record year for dealership profits. Some factors driving those profits include right-sized new vehicle inventory levels, lower business overhead due to many expense cuts, and greater F&I revenue per vehicle. Hopefully your dealership capitalized on these bright spots and you’re ending the year on a positive note. But I would be remiss if I didn’t caution you on some things to consider for 2021 – just to make sure you keep more of that revenue in your pocket.
Areas to watch for 2021
Inventory could be an issue for the first half of the year. According to Cox Automotive, dealers and automakers had 2.87 million unsold vehicles on lot in December – a 200,000 gain over November. While December is historically one of the biggest sales months of the year, this year may be different. The presidential election overhang and the lack of a December stimulus check could stifle those year-end purchases.
As the pandemic drags into the new year and economic uncertainty remains, dealers should ensure that every vehicle sold has at least one F&I product attached to it. Strength in F&I revenue this year proved that consumers are looking for value. Purchasing a pre-owned vehicle with a CPO looked much more attractive to cautious buyers who were forced in the pre-owned market with limited new options available.
Indeed, the uncertainty surrounding the length of the pandemic and its long-term economic fall-out is another area for dealers to monitor. Recent research from the Federal Reserve Board of Governors indicates that even families making $100,000 or more struggle to afford their monthly expenses. Business lock-downs in virus hot-spots could further hamper sales. Invest in training your employees and keeping your online and instore sales tools in tip-top shape. 2021 is the time to build on these insights and prove out a blended online and instore sales model to increase F&I penetration even more.
Speaking of training, fraud is on the rise. As the economic vise tightens, so does the risk of fraud. Online sales amp up the risk, making it easier for fraudulent buyers to dupe unsuspecting sellers. Make sure everyone is doing everything possible to verify identity, clear red flags and triple checking deals before they close.
Additionally, the new administration is signaling an increase in compliance regulation oversight with the Consumer Financial Protection Bureau (CFPB), and local attorneys general. While burdensome, they can work to protect both the dealer and the buyer. Again, make sure your F&I team is up to speed on all of the local, state and federal regulations. Now is not the time to suffer a compliance fine.
As we close out 2020 and take a minute to breathe, I hope there are some bright spots in your year and your dealership can look positively toward 2021.