Reasons why independent dealers should get ready for a slower 2023
The change in consumer emotion and profile that has been observed at many dealerships across the nation has not been widely discussed by vendors. Instead of removing the blinders and paying attention to the facts, which are extremely intimidating, it is preferable to claim ignorance. However, many family-owned independent dealerships are starting to face reality. One of the largest shifts will be in how we draw customers, how we market to them, and ultimately what kind of inventory draws them into dealership lots. Dealers grew exceedingly accustomed to the reality that clients had more money than they had ever had, from the start of the pandemic to the stimulus program that was implemented to aid American citizens. Therefore, even with markups, market adjustments, and any other addenda that were added to the total financed price of a vehicle, asking someone for 20% or even 30% down on a vehicle became standard practice in the auto industry. Due to supply limitations and the scarcity of secondhand cars, lenders also allowed this to drop. For lenders and dealers alike, this tornado of leniency has produced some extremely unusual circumstances. This had changed the dealer paradigm from working hard and following up with leads to basically taking orders, like a fast food restaurant, driven by record-breaking gross revenues. This lightened our financial load, softened our sales teams, and, presumably, made dealerships lazier. Even though this would primarily apply to franchise dealerships, many sizable independents have developed these negative tendencies. Because of this, I heed the warnings I give to readers of this blog and to those who are aware of these traps and their dealers.
#1: Gross’s current level won’t last forever.
Do you remember the five pounds you received from the one Internet lead that the car gurus decided to offer you after you had been using their method for seven months? Prices are starting to return to reality, and as the used car market returns to normal, so will the front-end gross and back-end gross that dealerships have come to expect. The most crucial element in ensuring that dealers survive during these difficult times will be volume. The goal of individuals who don’t operate high-volume stores will be to purchase merchandise at reasonable prices.
#2: Low down payments will become the norm.
More Americans than ever before are defaulting on their loans. This is because spending more money than planned is commonplace these days because of stimulus payouts. Consumer attitudes will probably shift as a result of the federal interest rate increases and the subsequent tightening of lender rules for years to come. In a slow economy caused by this, fewer people will likely purchase cars, and those who do may not have the down payment we’ve been accustomed to during the past two years. To get people into cars the following year, a lot of innovative financing will be necessary. You might therefore find it challenging to get employees approved if your F&I department isn’t equipped with the necessary skills.
#3: Subprime lending has become the norm.
Dealerships have traditionally sought out top clients with high incomes and sizable down payments, particularly if they aren’t eligible for buy-here-pay-here financing. And it makes sense—these deals are relatively simple to pull together and typically involve a lot less legwork. You’ll probably encounter more credit-challenged customers than ever before because a new wave of customers is entering the market. Therefore, if you lack the appropriate banks, such as Credit Acceptance Corp., Westlake Financial, Ally, or any bank that works with customers who have credit challenges. You’ll probably struggle to get the bulk of consumers into cars that they can afford. Not that there won’t be any prime customers—there will—but those who are prime might not be in the market for a car until prices adjust more forcefully or until financing rates return to more normal levels.
#4: Prices are still wildly inflated.
You know that our vehicle valuations are still outrageous whether you’re a buyer or even a dealer. Even though prices have decreased by an average of 7% just this year, many in-market car buyers still find it difficult to return to reality. Financing people for large sums without a sufficient down payment or any asset with positive equity to trade in has become challenging or impossible as a result of banks no longer permitting the same LTV’s as before. Although the pricing predictions for the first quarter of 2023 appear to be very positive, they are not sufficient to be a driving force in the new or used car market.
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