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Economy Industry Trends

Successful Second Half Requires Flexibility

Do you have a strategic plan for the second half of this year? Granted, the retail automotive industry has been on a roller coaster lately. But now is the time to assess your dealership’s performance over the past two quarters and set some milestones to achieve your end-of-year profit metrics. A successful second half of 2022 will require some flexibility and willingness to change behavior.

Looking ahead, there are several factors which spell opportunity for dealers to capture notable revenue in the second half of the year. Strong consumer financial positions, credit terms which remain largely favorable, and continued pent-up demand bode well for savvy dealers. While the Federal Reserve has raised interest rates and recession rumblings linger, consumer financing is still discounted when compared to rates during the Great Recession. According to the Federal Deposit Insurance Corporation (FDIC) quarterly report, aggregate monthly personal income has rebounded to pre-pandemic averages and auto loan volume has recovered faster than in previous down-turns.

For dealers, these favorable credit terms also spell revenue opportunities for those who strategically manage their inventory purchasing and pipeline sales. While inventory and supply chains remain an issue, the wheels are beginning to turn and factories are cranking out more units, albeit maybe ones without heated seats or auto-folding mirrors. Used car inventory is also improving, with bulk-sellers like CarMax reporting sufficient inventory to meet 30 days’ worth of demand. Rising interest rates may also be working in the industry’s favor for once, prompting a bit of a cooling effect on demand and allowing OEMs to catch up.

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EFG Companies F&I

High Mileage Vehicles Need High Mileage Solutions

According to S&P Global Mobility, the average age of vehicles on the road in the U.S. rose to a record 12.2 years in 2022, representing a two percent increase from 2021.  Twenty years ago, a car might have changed hands once or twice and lasted 100,000 miles, Today, it is more common for a car to have multiple owners and last for 200,000 miles or more. This extended life cycle of today’s cars creates more value for both owners and dealers – but with one caveat. These high mileage vehicles need high mileage protection to keep the car and its value in tiptop shape.

There are a couple of other issues at play, prompting consumers to keep a vehicle past its ‘prime.’ Thanks to rising new vehicle prices, many consumers are financing their vehicles for upwards of eight years in order to keep the monthly payment in an affordable range. Consumers also factor in long-term reliability when choosing a vehicle, a key criteria in OEM marketing and brand preference.

Today’s older cars also retain their drivability and are in better shape than the days of a heavy metal chassis. Vehicle manufacturers are building cars with a longer lifespan, leveraging improved assembly processes, better materials, and placing an emphasis on vehicle safety guidance from the National Highway Traffic Safety Administration and the Federal Motor Vehicle Safety Standards and Regulations. As a result, many of the top 15 longest-lasting cars are likely to reach 200,000 miles or more and also are ranked as the best-selling vehicles, based on automotive research firm iSeeCars.com.

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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.