Economy EFG Companies Industry Trends

No Longer A Seller’s Market

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While the industry bemoaned the vehicle production challenges over the last few years, dealers were able to sit back and let the sellers’ market work in their favor. Now, with new vehicle production ramping up and the market stabilizing it’s time to use a different approach. For a dealership to continue to see a sustainable level of profitability for the remainder of 2023, dealers must focus on returning to customer service best practices for both sales and the service drive.

The first half of 2023 saw a surprisingly strong new vehicle market as the available inventory issues resolved. For the most part, a heavy push of fleet sales and a resilient, prime-rated, U.S. buyer overcame high prices and record auto loan rates. However, according to Cox Automotive’s Chief Economist Jonathan Smoke, the second half of 2023 will likely not have the rosy sales experienced earlier in the year. “I do not believe we are on the cusp of exciting growth ahead. The market will still be limited by total available supply, but demand will also be limited by the level of prices and rates, which are not likely to come down enough to stimulate more demand than the market can bear.”

In fact, the first glimpse of this decline began in May as new vehicle inventory reached its highest level in two years and interest rates on auto loans continued to climb. May’s average listing price ended the month at $47,172, approximate four percent higher than a year ago. The average transaction price (ATP) for May increased a scant 0.5 percent from April to $48,528, up $251, according to Kelley Blue Book, a Cox automotive company. While Cox Automotive has increased its 2023 new-vehicle sales forecast to 15.0 million, a gain of nearly 8 percent from 2022, the company expects “headwinds will grow in the second half of this year as credit availability and unfulfilled demand become scarcer.”

Capture sustainable revenue

Strategically focused dealers are returning to customer-first sales methods that emphasize buyer education and value, along with employee training to ensure effectiveness and retention. For many, it’s time to dust off best-in-class sales habits. The days of relying on pent up demand and high margins to make quota are over.

Good sales habits start with meeting the customer where they are and asking the right questions. But those two tasks have changed dramatically over the past three years. A Cox Automotive State of Dealer Staffing Report reflected that the new digital retail sales environment has changed traditional job roles, requiring new skills and training to be effective. Staff should be well versed in using digital tools and communicating with diverse demographic groups both on and offline.

The type of vehicle your team is selling could also be quite different. According to Cox Automotive, U.S. battery electric vehicle (BEV) sales is forecast to surpass 1 million units for the first time. Buyers are likely uneducated about the unique aspects of BEVs. The differences in features and benefits between models are much more complex. Your sales team must be extremely knowledgeable about BEVs and able to succinctly communicate those details to an unfamiliar buyer.

Customer-focused selling does not end after the customer drives away in their new vehicle. The service drive is a critical revenue generator, especially when unit sales are down. The same best practices should be applied here as well. Vehicle knowledge, ability to communicate, and a focus on meeting the customer on their preferred platform are all keys to success.

The service drive is even more important for BEV buyers. They will have a myriad of questions, often best suited for the service manager. But there’s good news. A 3NG Consulting report revealed that dealer service retention for BEVs to be significantly higher – just under 90 percent – versus roughly 20 percent for ICEs.

One key to successfully managing market headwinds is through training. It is a dealer’s best chance of having a highly functioning sales and service team that excels across all communication platforms, fosters positive client engagement, and generates revenue. Our proven team of AFIP-certified trainers bring years of experience and proven curriculum that can refresh your sales team while helping you hire and retain new staff.

At EFG Companies, we’re more than an F&I provider, we’re your business partner with years of expertise in the retail automotive industry. Contact us today to learn more about how our team can help you achieve your winning strategy.

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