The inventory shortage took center stage in the automotive industry in 2021. As the chip supplies are loosening up, the worst of empty-lot situation is likely behind us. However, the vehicle supply might not improve before the year’s second half. The question is, how will the new year fare for the dealerships? Will there be a recovery in production and growth in new car sales? Let’s look at what might lie ahead of the automotive retail industry in 2022.
1. Growth in new car sales driven by pent up demand
Consumer appetite for vehicles continues to grow, and the tremendous desire for personal cars doesn’t seem to be changing. So, there is a high pent-up demand rolling into the new year. Thus, the vehicle demand will remain high to support new and used vehicle sales this year, and the dealers should be able to sell their inventory faster.
The new car sales are expected to climb by over 15 million units. According to IHS Markit forecasts, this reflects the growth of over 2.2 million units year over year. Additionally, used vehicle sales are also predicted to remain strong amidst the supply crisis.
2. The consumers will face limited choices and higher prices as the demand-supply remains an issue
So, the question is, how can dealers meet the expectations of their consumers with limited inventory? How does this impact customer experience?
From a customer’s standpoint: A consultative and customer-centric approach that focuses on benefitting the customers throughout the sales process is the key to reducing friction and improving customer experience. In short, a value-based tactic involves guiding the prospective customer to reinforce reasons why your offering is valuable to your purchaser- be it in the car sales of the F&I department.
From the dealership’s staff perspective: Empowering your teams with the necessary tools and data is critical. For example, updated inventory data and CRM insights provide information quickly, evolve their rhetoric and messaging, and serve the customers better in matching vehicles to their expectations. This would help reduce the friction for buyers and sellers and make it easier for both parties to complete the transaction.
In addition, be mindful of promotions and advertising on the inventory-based solution. Promoting inventory that you own instead of marketing core models and only certified pre-owned models. It wastes dealership resources and draws customers for vehicles you might have. It leads to higher dissatisfaction among shoppers and impacts your dealership’s image—which matters more than one might think.
3. The F&I revenue opportunity will remain a profit center for dealerships as they see a growth in new car sales
The new and used car prices are higher than ever. As the consumers pump in big bucks to buy a vehicle, they are highly likely to protect it from unforeseen problems.
Furthermore, consumers’ risk tolerance capacity plays a significant role in the F&I department. Studies show risk tolerance, especially towards financial emergencies, has shifted to a conservative direction amidst uncertain business, social, and political scenarios. Therefore, F&I managers can help customers put aside their anxieties and protect their vehicles with appropriate coverages and products.
4. The prices for used cars would not decrease as rapidly
Towards the end of 2021, as the empty-lot syndrome was at its peak, the used car prices skyrocketed, and affordability highly influenced the buying decision. The average used-vehicle price set new records and rose above $28,000 in December 2021. Without new vehicle production and supply getting back to their full potential, the used cars are not as quick to depreciate as they have been in the past and cost close to what a new model runs.
Then again, what does this mean for you, your dealership, and your customers?
It depends on what you make of it. Pricing the vehicles strategically to compete with other dealerships and offering valuable F&I products increases the vehicle’s value to customers while surging your profitability. Procuring used cars is not easy for every dealer, but your service drive could be an excellent resource for buying used vehicles from your existing customers and filling empty lots.
5. The Service drives will be a revenue center this year
The average age of cars in the US is over 12 years old, as per research by IHS Markit. In addition, Cox Automotive reveals more car owners will be focused on fixing up than breaking up. Furthermore, Americans expect to drive more in 2022 than last year. Therefore, the more visits to service drives, the more opportunities for service drive to become a critical component of the dealership’s success.
All in all, the year ahead would show signs of relief for the auto retail sector. As a result, the dealerships and their staff—sales, F&I, service would sell their inventory faster and secure more opportunities to help shoppers safeguard their purchase with valuable F&I products.
PRO Consulting can support your dealership profitability with strategic growth planning to help you stay relevant in the challenging market conditions. Book your free 15 minutes consultation to discuss how your business can drive growth in new car sales and reach higher profits.