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Springtime Boosts Consumer Confidence. Dealers, Stay Cautious!

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For much of the country, the sights and sounds of spring have begun. This year, those green shoots of renewal come with an extra boost of optimism. Temperatures are warming, vaccine distribution is rolling out, and COVID-19 cases are trending down across much of the country. A third round of stimulus checks and income tax returns are hitting consumer bank accounts. Other signs of economic recovery are also evident, including a February rise in total nonfarm payroll employment by 379,000, largely attributed to gains in service and hospitality jobs. The Conference Board Consumer Confidence Index for February continued its upward rally, reflecting consumer’s general optimistic outlook.

With all of these positive economic signs, the retail automotive market should be primed for a great spring. But there are two sides to the story, both hinging on inventory of new and used vehicles. With caution, dealers will need to closely monitor both sides of the equation, as well as listen closely to buyer attitudes to capitalize on the positive trends.

New vehicle inventories are facing an unusual challenge. While factories have returned to work, pandemic-related global supply chain challenges are hindering parts availability. From plastics to semiconductor chips, manufacturers are left trying to source substitute parts, or simply waiting for deliveries. Dealers who are normally looking for space to house new vehicles at this time are faced with too few units. Consumers flush with extra cash are forced to either wait for their car of choice or pre-order vehicles months in advance. A recent Wall Street Journal article characterizes the situation well, indicating the forecasted retail automotive rebound is being hamstrung by situations thousands of miles away.

Used vehicle inventories are constrained for another reason. Consumers refrained from selling their used vehicles during the pandemic and inventories are trending down. A recent Cox Automotive report indicated the total supply of unsold used vehicles totaled 2.59 million at the end of February, down from 2.66 million vehicles at the end of January. For dealers looking for the typical spring restocking deals, there is another hurdle. Wholesale prices increased 3.8 percent in February, pushing the Manheim Used Vehicle Value Index to a new record and leaving it up 17.9 percent year-over-year. Tight inventories and higher wholesale prices are forcing higher sales prices, which in turn forces some buyers out of the market.

Maximize opportunities

In today’s market, it’s all too tempting to front-load the price of a vehicle. After all, consumers don’t feel they have the upper hand when it comes to the negotiating table. They can take it or leave it, and the next consumer that walks through your dealership could take it.

The problem with this is two-fold. First, it leaves quite a bad taste in the customer’s mouth. It’s definitely not quality customer service. Second, by focusing on maximizing the upfront price of a single unit today, you could end up losing multiple repeat sales tomorrow, as well as referral business.

Rather than selling for today, strategic dealers are looking at the long game. They are keeping their unit prices competitive, increasing profit on the backend with consumer protection products, and cultivating long-term customer relationships.

To help increase profit margins, the right F&I product mix is key. When evaluating your F&I product mix, make sure your protection package options match your customer base. Much has changed in the way of consumer protection products and consumers in the market for a new vehicle may not be aware of the offerings that add instant value.

When building your pre-owned inventory, be sure to include pre-owned protection packages to immediately increase the value of the unit. Powertrain and pre-paid maintenance protection can be strong selling points to a customer leery of purchasing used.

In order to be successful with these new protection packages, your staff must be trained on their features and selling benefits. Whether working with customers in the showroom, online or both, the effectiveness of your team delivers a strong return on investment. 

The team at EFG Companies brings a wealth of strategic business acumen and tools to drive value for our dealer clients. We’re not just your F&I provider – we are your business partner. Contact us today to learn more about our profitable solutions for your business.

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