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EFG Companies

Make the Most Out of Maintenance

Possibly since the dawn of the first dealership, dealers have known the importance of building repeat business through the service bay. The more the customer relies on your dealership for all their vehicle needs, the more likely they will return for that repeat purchase, creating a cycle that can last for as long as the customer is driving. However, that golden cycle of purchase-service-repeat seems more elusive than ever.

According to XTime Metrics and Cox Automotive, for service departments at U.S. dealer franchise locations, the Repair Order Volume Index in January 2022 decreased month over month by 9.0 percent from December 2021, while the Repair Order Revenue Index increased 1.6 percent during the same time frame. Repair order volume remains well below pre-pandemic levels, but revenue per repair set another record high. The service bay was less busy, yet revenue continued to boost the dealership’s overall bottom line, generating an average of $490 in revenue per repair order.

Service revenue proved so lucrative for retail automotive dealers in 2021, that six of the country’s largest dealers notched a 12.6 percent increase in the fourth quarter of 2021 vs. 2020, according to company filings. Clearly, measurable revenue can be driven in the service bay.

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Categories
Economy

Will Interest Hikes Impact Dealerships?

Earlier this month, the Federal Reserve increased its interest rate by a quarter of a point, and signaled they planned six more increases throughout the year. In response, banks with large auto loan portfolios raised their prime rates from 3.25 percent to 3.50 percent. The theory behind this is relatively straightforward. By raising the federal funds rate a domino effect takes place, slowing demand for goods and tapping the brakes on inflation. Whether directly or indirectly, a number of borrowing costs for consumers will also rise.

Prices for new and used vehicles have skyrocketed so much in the past year that an increase in interest rates may seem like small potatoes. The average interest rate on new car loans was 4.39 percent in February, relatively flat from a year ago, according to Dealertrack. The average for used vehicles was 7.83 percent in February, down from 8.25 percent. Car buyers taking out loans for a new vehicle borrowed an average of $39,721 in 2021, an increase of over $4,000 from a year earlier, according to Experian. As a result, monthly loan payments hit a record high of $644.

Car loans tend to track against the five-year Treasury, which is influenced by the federal fund rate. But the rate a consumer pays is based on credit history, the type of loan, down payment, type of vehicle and other factors. Those buyers with poor credit could pay more than 20 percent over the prime rate. For a consumer qualifying at the prime rate, a quarter point increase on a $40,000 loan is about $5 a month, or another $300 over the life of a five-year loan. For a buyer at subprime or worse, a quarter point increase could make a significant difference on the type of vehicle, the terms of the loan or even a “no-go” decision to purchase a vehicle.

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Categories
Industry Trends

Get on the Road to Digital Sales Success

Does it feel like aside from news on the pandemic and supply chain challenges, the mantra for the last two years has been digital sales? In their last quarterly shareholder meetings, each of the publics discussed their digital sales platforms. In the most recent car buyer journey study, Cox Automotive stated that 80 percent of consumers plan to complete at least part of their vehicle purchase online, and 25 percent expect the vehicle purchasing process to happen entirely online.

Of course, we know there is a difference between expectations and reality. In this digital transition, very few transactions happen online, soup-to-nuts. The average consumer’s actual experience reflects a more hybrid model, with both digital and physical touchpoints.

Dealers navigating this transition need a strong customer engagement strategy, both on and offline, which requires new skillsets and training. From the initial encounter to closing the sale, your team members must be adept at engaging with the customer on their platform of choice. The salesperson who masters these many nuances will make the sale – and get the commission!

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