“I had a great year last month.”
Is your store still operating in this headspace?
Don’t get me wrong, October was one of the most lucrative sales months on record. Shoppers spent over $46 billion on new inventory alone.
But, the automotive market is transitioning faster than I’ve seen throughout my 25+ years in the industry.
The tables are turning quickly back toward a buyers market. Familiar days of OEM incentives, price markdowns, and depreciating used inventory are right around the corner. If your business is ignoring the warning signs, you’re putting your winning streak at risk.
Now let’s dive into the obvious bad news, and then we will get into the silver lining and how you should adapt. Because there is hope, and you can still do well in this market.
The bad news…
The automotive industry is teetering in a downward direction fast. I’m no economist, but most of it is related to external factors none of us can control such as rising interest rates, supply chain issues, increases in oil and energy prices, and international conflicts.
These factors are impacting the automotive industry on a global scale and may result in a serious financial downturn, causing U.S. car buyers to finally cut back on their purchases.
At a glance…
The car buying experience is nothing like it was two years ago – even for the most financially stable car shopper.
- New-vehicle prices are dropping a bit, but they’re still 33% higher than pre-pandemic prices and have been selling above MSRP for 16 consecutive months.
- The average interest rate on a 60-month new car loan is close to 5.5% or 5.75%, and the number of shoppers making new car payments of $1,000/month is at a record high.
- U.S. households’ discretionary cash flow (the money households have to spend on nonessential items after expenses) has dropped 4.2% over the past year.
Here’s what’s interesting…
Because LotLinx works with dealerships of all sizes, we see data from both small and medium dealerships as well as national brands. We also work closely with some of the biggest advertising platforms and have proprietary tools that track millions of consumers, meaning we really see a lot of data and trends.
Here are the 3 main trends we are seeing from our unique perspective:
Trend #1: Shopper engagement is decreasing
Financial stability may be hard to come by. As it stands, the average American shopper is paying close to their yearly salary in car payments.
As a result, shopper engagement is down nearly 10% for select brands, setting the stage to leave dealers with overpriced and hard-to-sell inventory.
Trend #2: New car inventory is rising
New car inventory is at its highest point since summer 2021, rising 90,000 units just last month. However, the growth is limited to select OEMs and select body types, increasing the competitiveness of the industry landscape.
Trend #3: Lots are full of $50k+ vehicles
Take a brand like Nissan for example. According to LotLinx data, there are close to 35,000 units for sale between $35,000 and $45,000 and over 8,500 units for sale for over $45,000 on Nissan dealers’ lots.
If demand continues to decrease and inventories continue to grow significantly, manufacturers could begin increasing consumer incentives. As we remember, incentives put pressure on wholesale and used vehicle values as well as competing new vehicle brands with less inventory and less enticing offers.
The best way to avoid getting swept up in the change is to understand your inventory at the VIN level and have a plan to sell every single unit.
The silver lining…
As I mentioned earlier, we see a lot of data. We’ve noticed a pattern among our dealership partners that have experienced revenue growth this year. These dealers are taking advantage of the current economic climate to double down and gain market share.
So, how are they doing it?
- Moving clunkers to get their used car inventory healthy
- Strategically pricing every vehicle competitively
- Reallocating wasted advertising to gain market share
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Moving forward…
Just because the economy is shifting, it doesn’t mean you can’t continue to grow. You can still make a lot of changes that will put your dealership in a much better place when the economy gets turbulent.
In other words, start thinking outside the box. Don’t focus all your energy on the news, focus your time on solutions and new ways to grow.
And, in the coming weeks, keep an eye out for:
- Our latest dealer playbook that covers some tried and true retailing strategies that got dealers through the last market shift and are sure to ease the blows this time around. {Free download coming soon!}
If you’d like to make substantial change today, join the thousands of dealerships already preparing for this shift with LotLinx technologies. Get started.
About the Author:
Neal Gann currently serves as President of LotLinx, the /AI/-powered precision retailing platform. Neal brings 20+ years of expertise in leadership, senior-level product, sales, strategy, digital marketing, business development, and operations. Prior to joining the LotLinx team, Neal most notably served as CEO of Showroom Logic where he oversaw the sale of the award-winning company to PureCars.
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