potential vulnerabilities for EVs, such as long waits at charging stations, limited access to power during emergencies and the danger of fire from batteries exposed to flood waters. While these incidents may be isolated, they have raised consumer awareness of EV limitations in extreme weather scenarios. While EV concerns may keep ICE vehicles around for quite a while, dealers are promoting hybrid vehicles as a bridge to broader EV adoption. For many two-vehicle households, today’s EVs may serve as a shorter-range city car backed up with a hybrid or ICE vehicle for long-range trips. Global Events and Policies Given the potential for political shifts and international trade disputes, global trade and sourcing risks remain. “The auto industry is better positioned than in previous years, with a more resilient supply chain that points to North American production increases and diversified sourcing strategies,” says Skordeles. But geopolitical events — such as tensions with China — pose risks, especially concerning semiconductor supply from Taiwan. The industry’s steps to mitigate these risks through reshoring efforts and enhanced supply chain management are still a work in progress. It’s unclear how exactly the new administration’s proposed trade policies, which include China-specific and across-the-board tariffs, will affect auto retailers. Smoke says, “The last time the tariffs were advanced, we had a lot of threats with Europe, Japan, Canada and Mexico, but everyone backed down and made rational decisions. The last NAFTA renegotiation that led to the United States-Mexico-Canada Agreement (USMCA) ultimately caused minimal disruption to the industry.” It’s too early to tell whether auto retailers may benefit with additional protection, experience pricing or supply disruptions, or avoid significant impact. “The good news is that after the pandemic and supply disruptions, the industry is better prepared with more resilient sourcing,” adds Smoke. “Another benefit could be urgency in near term demand by consumers worried about higher prices in the future.” Labor Constraints and Service Opportunities With a tight labor market, hiring and retaining skilled staff remains challenging. Skordeles says, “Labor market constraints, driven by an aging population, reduced labor participation rates and slower workforce growth are expected to persist for decades. That’s going to push wages higher and present ongoing expense challenges for businesses.” Rising wages are driving businesses to seek greater productivity through automation and investments in technology. “AI-driven customer service tools, automated marketing platforms and scheduling software offer the promise of productivity gains that drive margins and reduce dependence on scarce labor,” says Smoke. Vehicles on the road today are more complex than ever, with advanced safety features and electronic systems that drive up the cost and frequency of repairs. Consumers are keeping vehicles longer, and as vehicle age increases, so does the demand for maintenance and repair, along with the cost. Dealers have an opportunity to grow their service departments and increase profits. A tight labor market stands between dealers and those service revenues. Dealers who can attract Continued from page 14 but with the days of sub $20,000 new cars long gone, don’t expect to see it much higher.” Even with the pressure on affordability that’s kept annual new vehicle sales under 16 million, the auto retail industry has enjoyed its highest profits ever. “We should see a year where OEMs are in balance with market demand,” says Smoke. “Inventory levels for most brands — Stellantis and Nissan excepted — are 15-20% below pre-pandemic levels. Those inventory levels should put a floor under pricing while curbing floorplan carrying costs.” Used Cars Besides its sensitivity to financing rates and vehicle prices, the used car market faces distinct challenges. Inventory remains tight, a consequence of reduced production since COVID and a decrease in lease maturities, which normally supply much of the certified pre-owned market. Sourcing used vehicles will require more effort along with higher costs to acquire used inventory. In the end, the supply constraints should benefit dealers with price stability and larger margins, especially for high-demand brands and models. Electric Vehicles Present Opportunities and Challenges “Demand for electrified vehicles (EV) continues to grow, with EVs reaching 8% of new vehicle sales,” says Smoke. “Hybrids look to hit 12% of sales this year, providing customers access to greater fuel efficiency and lower emissions without the range and infrastructure limitations of EVs.” Toyota, for example, has gone fully hybrid on certain models, responding to consumer demand for fuel efficiency with practicality. Skordeles points out that recent hurricanes in southern states revealed 16 Illinois Automobile Dealer News
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