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Economy

Times – They Are A Changin’

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Gabe Aldrete Vice President EFG Companies
Contributing Author:
Gabe Aldrete
Vice President
EFG Companies

Bob Dylan said it best – “If your time is worth saving, then you better start swimming, or you’ll sink like a stone.”

We’re over 10 days into the 4th quarter and the news is out. According to Business Insider, analysts expect the year to close out at 17.5 million vehicle sales. Automotive News recently stated that in comparison to last year’s growth, 2016 represents a flat market in terms of vehicles sold, revenue and profitability. Overall, the industry is still healthy. We are still at the peak of auto sales. And, dealers are still very profitable.

However, while dealers have benefited from six years of growth, the positive trends that kept vehicle sales momentum going are puttering out. The pent-up demand that everyone was talking about in 2010 and 2011 is virtually gone. After extensively broadening credit standards, lenders are starting to pull back from subprime. In addition, lenders are concerned about extending credit terms much more without affecting loss ratios.

Dealers who’ve been around for a decade or two are used to the cyclical nature of the industry. Any dealer worth their salt knows that when you get into challenging times, it’s time to look at other streams of revenue. Through the last recession, dealers became very good at pre-owned sales, service, and finance. Now is the time to take those skills and hone them even further. For example, used-vehicle prices are falling once again as a surge of off-lease vehicles enter the market, creating a greater demand for used than for new. It could be time to once again evaluate your floorplan to better determine your ratios of new to used vehicle inventory.

Now is also a great time to look at solutions beyond the norm, refine your skills to adapt to new market demands, and evaluate other expense measures. After all, there are also several positive changes affecting the dealership landscape on which you can capitalize – starting with consumer expectations.

Beyond a shift in vehicle buying patterns, consumers are also changing their expectations of what the car buying process should be. According to a 2015 Autotrader study,

  • 56 percent of consumers want the ability to start the negotiation process online;
  • 72 percent want to complete the credit application and financing paperwork online; and,
  • 75 percent would consider conducting the entire car-buying process online.

With all signs point to lenders tightening credit standards and consumers tightening their household budgets for more economic vehicles, it’s time for dealers to shift their focus from pure vehicle sales to cultivating long-term relationships.

The dealers currently exploring new online services will inevitably be able to better satisfy consumer demand for speed and transparency. This will include new skills sets, significant training, and an investment in technology solutions, but the end result will impact dealership elead volume and, potentially, customer retention.

Let’s not leave service out of the mix. In addition to changes that benefit vehicle sales, the service drive stands to benefit from the rise of connected and electric vehicles.

According to McKinsey & Company, by 2018 one in five cars on the road will be “self-aware” and able to discern and share information on their mechanical health, their global position, and status on their surroundings. Meanwhile Navigant Research has stated that the electric vehicle industry is expected to grow at a 37.4 percent compound annual growth rate over the next few years.

PwC’s Strategy& recently reported that connected vehicle sales alone could generate US $155 billion in the next few years. Beyond the pure sales potential, connected vehicles give dealers much more adept tools to cultivate lasting customer relationships through the service drive, compounding their revenue potential. Add together the revenue derived from connected vehicles with the service revenue from electric vehicles, and a new dealership model emerges with an enhanced focus on customer retention and long-term profitability. Of course, all of this depends on dealers taking the time now to begin preparing their service drive for these changes.

The beauty of 2016 is that while the market is still high and dealers are still thriving, they have the time to make the changes necessary in their service, sales and F&I departments to significantly reduce the impact of a market turn and utilize market changes in their favor. At EFG Companies, we have helped dealers stay ahead of market trends with innovative solutions for close to 40 years. We know how to read and help dealers capitalize on those trends that can forever change the retail automotive landscape. Contact us today to start swimming.

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