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Industry Trends

Focused Flexibility Matters

Some may remember the good old days when car deals were sealed with a handshake and paperwork was completed with a pencil and ledger book. Those days came into sharp focus recently with the CDK outage, illuminating the value of a strong agent partnership in weathering unpredictable challenges.

Fortunately, EFG’s agent and dealer clients were able to keep business flowing by deploying teams of trained support staff to help with sales and provide access to EFG DRIVE within days. Our nationally award-winning online portal allows dealerships to electronically rate, contract, and submit aftermarket products in F&I, as well as electronically submit, self-adjudicate, and receive automatic claims approvals in service.

This paints a small, but very powerful message about the importance of agent relationships. With a volatile market and political uncertainty creating ongoing concerns for the retail automotive industry, EFG sees market strength as well as positive economic and consumer trends for the second half of 2024. However, just as with the CDK outage, focused flexibility is needed for agents to successfully weather the remainder of the year.

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Industry Trends

Focus on What You Can Control

We’ve all heard pundits and analysts make predictions about everything under the sun. These days, the economy and political wrangling provide rich fodder. We at EFG also make predictions as part of our strategic guidance to our clients and partners, backing them up with nearly 50 years of experience, including 11 presidential elections, 22 Congressional elections, countless state and local contests not to mention the Great Recession and a pandemic. We’ve been there, done that.

All that to say, we recommend retail automotive dealers set a tone of operating with certainty and focus their efforts on F&I, training customer service best practices, and differentiating their dealerships based on the value provided. We have all experienced challenging markets like this, and volatility is nothing new in our industry. We know that when front-end margins shrink, back-end margins must expand.

Fortunately, dealers today have an ace up their sleeve! The new labor force in retail automotive is extremely well-educated and eager to be successful. But for the last four years, dealer sales and F&I teams have had an easy time of it, responding to an eager consumer with COVID cash. They lack the training or muscle memory for selling and generating revenue through consumer protection products.

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EFG Companies

Three-Pronged Focus Delivers Value

In October of this year, average new car transactions were about 21 percent higher than the same month three years ago when no end was in sight for the pandemic. Conversely, average transaction prices are also about 20 percent higher than in October 2020. Despite moving more metal, falling profits have dealers feeling particularly uncomfortable; hence, the automotive industry saw declines in the Q3 2023 Cox Automotive Dealer Sentiment Index, which declined for five consecutive quarters.

According to Cox Automotive economist Jonathan Smoke, “The latest index indicates that persistently high interest rates and lingering concerns about the economy and market conditions are dampening overall dealer sentiment. Franchised dealer optimism is on the rise, whereas independents are less hopeful due to affordability issues that more acutely affect the used-vehicle market and their businesses.”

With the UAW strike in the rearview mirror and inventory strong, there is room for optimism for dealers facing a hesitant buyer’s market. According to Kelley Blue Book data, new car average transaction prices (ATP) stayed flat month-over-month in October at $47,936. Cox Automotive reports that new vehicle transaction prices fell more than 3.5 percent year-to-date as downward price pressure continues to favor buyers in the market. Manufacturer incentives also increased to an average of $2,400 in October as OEMs lent support to move units off dealer lots.