Pent-up demand is virtually gone, and lenders are pulling back from subprime credit. It’s time for dealers to review other parts of their business to maintain profitability.
While dealers have benefited from the past six years of growth, the positive trends that have kept vehicle-sales momentum going are puttering out.
The pent-up demand from 2010 and 2011 is virtually gone, and lenders are pulling back from subprime loans after a time when credit standards were broadened. Lenders also are concerned about extending credit terms too much more without impacting loss ratios.
Of course, dealers who’ve been in the business during the past 10 to 20 years understand the cyclical nature of our industry. They know that when challenging times arise, they must look at other streams of revenue to maintain profitability. Through the last recession, many dealers grew their pre-owned sales, service and finance offerings. Now is the time to review those offerings and further tweak them.
For instance, used-vehicle prices are falling due to a surge of off-lease vehicles entering the market. In turn, this trend is helping foster greater demand for used vehicles. Now would be a good time to evaluate your floorplan to determine how to best utilize used-vehicle inventory with certified pre-owned programs.
There also are several positive changes on which dealers can capitalize – starting with consumer expectations. In addition to shifting buying patterns, consumers are changing their expectations of what the car-buying process should be. According to a 2015 Autotrader study:
- 56% of consumers want the ability to start the negotiation process online.
- 72% want to complete the credit application and financing paperwork online.
- 75% would consider conducting the entire car-buying process online.
As this shift in consumer dynamics and lender credit standards occurs, dealers also must shift their focus from pure vehicle sales to cultivating long-term relationships.
One way to do this is by exploring new online services, as a strong web presence will better satisfy consumer demand for speed and transparency. Establishing a greater online presence will include new skill sets, significant training and an investment in technology solutions. However, the result will be greater e-lead volume and customer retention.
Another consideration in cultivating long-term relationships is through the service drive. 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 & Co., by 2018 one in five cars on the road will be “self-aware” and able to share information on their mechanical health, location and status of their surroundings. In addition, Navigant Research has stated the electric-vehicle industry is expected to grow at a 37.4% compound annual growth rate over the next few years. Lastly, Strategy&, PricewaterhouseCoopers’ strategy-consulting team, recently forecast connected-vehicle sales alone could generate $155 billion in the next few years.
Beyond pure sales potential, connected vehicles give dealers more ways to cultivate lasting customer relationships through the service drive, increasing their revenue potential. By combining revenue derived from connected-vehicles sales with the service revenue from electric vehicles, a new dealership model emerges with an enhanced focus on customer retention and long-term profitability. Dealers should prepare their service drives for the changes ahead.
While the market still is high and dealers still are thriving, dealers who begin evolving their service, sales and F&I departments will reduce the impact of a market turn and leverage market changes in their favor. While the retail automotive landscape continues to evolve, those who stay ahead of the trends will benefit through increased profitability in the years to come.
John Stephens is executive vice president of Dealer Services at EFG Companies. He can be reached at 972-445-8910 and email@example.com