Market, car sales trend, and dealership profitability influenced by inventory shortage and high prices
New vehicle sales for September 2021 are expected to decline 25%, hurt by a shortage in inventory even as consumer spending remains strong, reported JD Power and LMC Automotive in a joint forecast. Thus, the dealership’s profitability in inventory shortage could be impacted.
“September results show that there are simply not enough vehicles available to meet consumer demand,” JD Power said in a statement.
The gap between supply and demand is rising and is causing a record high price of new vehicles. According to a new report from Kelly Blue Book (KBB), the average transaction price (ATP) for a new car in September was up nearly 10% from a year ago, reaching $43,355.
Additionally, the sales of new vehicles decreased compared to the pre-pandemic era, squeezed by chip shortages and high prices. Therefore, it is critical to be creative to ensure dealership profitability in inventory shortage.
Chart source: CBS News
Average used car price sets another record
Offering used cars seems to be an obvious choice for dealers. However, procuring quality used cars have been a challenge in itself. Furthermore, the prices for used cars are heating up, and affordability is decreasing. According to KBB, the average listing price for a used car rose to $25,829. Furthermore, the older, high mileage cars are in the shortest supply. This shows, affordability is a significant factor for many consumers, and they are looking to buy a car that fits their budget even if a car is high on mileage.
Mitigate the loss of retail units and revenue
The chip shortage has hit the car manufacturers and dealerships. However, if the last year has taught the industry anything, it is that the auto industry can move quickly to adapt to the changing scenario.
The dealerships are doing everything in their scope to meet the needs of the consumers. From going fully digital to delivering vehicles at home, dealerships have transformed to serve their customers and maintain profitability.
The shortage of inventory has undoubtedly impacted the sales and profits of the dealers. But there are ways you can mitigate the loss of retail units and revenue.
The inventory shortage is out of control, but how you respond to maintain profit is not.
Here are some of the useful strategies for you:
1. Service Drive Sales:
Collaboration is multiplication. —John C. Maxwell.
Service drive and F&I departments have different environments and business objectives. But it is essential to remember that everyone is still part of the same dealership team. Hence, working together with other departments will help everyone grow profit and serve customers better. Educate service personnel on what to sell, when, and how. Notably, discussing additional benefits of doing so may be a good idea, especially in commission-based service departments.
With a strong collaboration among service and F&I departments, you could help the customers see the value in finance and insurance products. For instance, when a customer drives in for their vehicle’s service, it would be beneficial to offer them valuable products such as high mileage coverage, tire and wheel coverage, and paint protection based on their vehicle condition, mileage, and driving habits. This would be an effective way to raise dealership profitability in inventory shortage.
2. Create value for your customers:
The more you focus on the value of your product or service, the less important the price becomes. – Brian Tracy
With a change in consumers’ vehicle retention and driving habits, it is critical to understand what creates value for your customers. The dealership should use reasonable effort when assessing client needs. This will allow you better match the products to consumer needs. For instance, know what vehicle service contract (VSC) your customers currently have and what they might need next.
In addition, customized programs serve a client’s individual needs, including market-driven options that complement manufacturers’ programs, such as Diesel Wraps, Extended Power Train Wraps, Certified, and Lifetime Wraps.
3. Add non-cancelable products to your portfolio:
F&I is a significant stream of revenue, especially in this market condition. The best way to make up for the loss of profit from inventory shortage is to increase sales of non-cancelable products and warranties.
We see that some pre-loaded and non-cancelable products, such as BrakePlus and EverDrive, have high penetration rates, as high as 90%. Moreover, in the long run, these sales add up to more guaranteed revenue.
More information on BrakePlus follows:
Your Value:
- Increase your front-end profit by $250 per vehicle
- 70%-80% penetration
- Noncancelable, re-insurable*, pre-loadable*
*Contact PRO for details on how BrakePlus can work for your service, sales, parts, and finance department.
Your Customer’s Value:
- Improves safety from other drivers while on the road
- Decreases chance of rear damage to the vehicle
- Product Warranty may be purchased with the system for added coverage
PRO Consulting can help you mitigate the loss of retail units and drive your profitability. We have been in the auto industry for over three decades. We leverage our expertise in supporting the dealers to find unique solutions to raise their revenue significantly. Get in touch with us to find out how we can help you grow your dealership.