Saying ignorance is bliss. However, Yours Gives Me Chills
Let’s state up front that this post isn’t about abusing somebody. It’s about giving practical perspectives on the challenges we’re now facing. If we don’t address the problems we have now, we’re setting ourselves up for an unpleasant awakening in the months to come. For those who have been living under a rock, a recent NY Times piece states that by 2023, auto sales will have fallen to levels not seen since 2011. Yes, that would be acceptable given the greater gross profit. However, is that the result of wearing rose-colored glasses?
Interest rates have been rising consistently, which is no secret. Even though it is only a fraction of a point here and there, it is still far higher than it was at this time last year. Dealers historically had little trouble selling beyond MSRP owing to supply constraints, but can they still do so now that inventory levels are starting to saturate and interest rates are at an all-time high? The dealers will actually need to start selling again. And if we don’t have a game plan, whether it be for handling a sales process or managing inventories, we’re in danger.
What the OEMs decide to do with price and inventory is one of the key things that dealers will need to watch out for over the next year or two. It might work out if dealers can maintain leaner, more nimble inventory levels. However, just because dealers keep their inventories at reduced levels doesn’t guarantee that their cars will sell. The customer can be more cautious when buying a car if the rates keep rising. Let’s not forget that buyers who purchased used cars in the previous three years did so at an all-time high. And when it comes time to buy a new car, they’ll probably run into difficulty. Consider this: Those who purchased at the height of 2021 will only have had their car for two years! Are we really going to be able to get those clients into a new automobile when they return to perhaps trade in their current vehicles?
The banks will most likely restrict their book-out values if the consumer is flipped, paid at or over MSRP, or paid 135% of the used automobile value. Are we prepared to handle the fallout from selling at record-high profits? Will this eventually bite us in the rear? Sure, we could continue the Cash for Clunkers program that began in 2008. It’s only that the customers might not think the beaters are worth the cash required to buy a new car. Not to mention, banks with higher APRs may not always grant approvals for loans with significant negative equity without a sizable cash down payment. And will the OEMs be willing or able to start providing more incentives for buying cars? According to the most recent OEM incentive statistics, they are actually declining year over year and are not anticipated to increase.
What does all of this ultimately mean? We must therefore be strategic in the months to come. There isn’t much room for error here. Those who offer pre-approvals and monthly payments through their websites’ digital retailing should make sure that their online procedures are concise and transparent. How many consumers may have left because the “potential” financing was out of their price range? As trade-in values decline and the lenders are only ready to book out a certain amount of value, the situation will only get worse.
Bottom line: This isn’t about predicting doom and gloom; it’s about ensuring that dealers have a strategy to cope with the challenges we’ll face. In the past ten years, if there is anything we have discovered, it is that dealers are resilient and frequently face obstacles head-on. We need efficient dealer-level systems in place if we’re going to face those difficulties head-on. ensuring that we take advantage of every opportunity that comes our way. The heyday of the pandemic, when clients came to us without any reservations, is long gone. There will be challenges we must overcome, and if we don’t meet them head-on, we will struggle.
The good news in all of this is that there are tools at your disposal to make sure you’re heading in the right direction. Calls are more important than ever. Please take a moment to register for a free stealth test. We’ll mystery shop your dealership and provide feedback on how to enhance customer service from your team. And no, this is not a one-time assessment of a phone call. It’s a long-term plan to enhance and perfect their approach. a method that will be helpful in the days to come.
Are you prepared to face the obstacles that lie ahead in 2023?
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