Publication1 2021 Issue 1

19 KENTUCKY AUTO DEALER recovery. However, overall, the recovery seems to be going faster than anyone anticipated, and dealers have shown you can still make money by selling cars. Although it may take four years to bounce back to the same sales levels as those in 2019, optimism is reasonable if you focus on profit instead of volume. How big was the production drop for manufacturers? U.S. dealerships sell substantially more trucks than cars, so production numbers match that sales expectation. According to Motor Intelligence: • In January and February, truck production fell 6%, and car production fell 26%. • By June, car sales were about the same (with a drop of approximately 26%), but truck sales had fallen 34%. • In October, the production drop for cars was 22%; it was 26% for trucks. The inventory gap will continue, going into 2021. No one knows yet whether the gap will continue or disappear. If matters continue to improve, the production gap may be gone by the end of the year. But you will want to come up with new processes to minimize the inventory gaps we know for sure we will have and maximize selling inventory as effectively as possible. Dealers prosper when manufacturers prosper; it has always been a synergistic relationship. But going into 2021, you can’t sell a commodity you can’t get. Since dealers have an inventory gap for new vehicles, that reality means this is a great time to pivot toward preowned ones and focus on vehicle acquisition. This particular pivot is not surprising. According to Tanja Linken of IHS Markit and Pete Margaros of automotive Mastermind during a recent NADA webinar, the used market typically increases and the new market decreases during an industry crisis. Increased demand for used vehicles has already driven up auction prices. How can you combat that? Many vehicles currently on the road were purchased during the record sales years that preceded the pandemic. The vehicles sold by your dealership form a portfolio you can now manage as buyers tilt toward used cars instead of new ones. Doing so will be cheaper than using auctions. According to IHS Markit, dealers are currently selling approximately three used cars for every new one. To close the deal, though, you will need to finance the sale 90% of the time. Be competitive. OEMs responded to the pandemic by offering incredible financing offers in the new car market, and most financing companies did leasing extensions. For example, some OEM programs offered 0% for 84 months, effectively taking many potential customers out of the market for seven years. However, the leases that were extended are coming due now. Approximately 72% of all deals made have longer terms, so each sale matters because it will be a while before you will have another opportunity. Afterward, your customers are off the market and on a relationship journey with your dealership. What you do during that time may determine whether they buy their next vehicle from you too, but they are also giving you the chance to make money before the next sale. The ideal sales strategy focuses on solving a customer’s problem, not persuading them to buy something they don’t need or want. Having information about a customer gives you that chance to solve instead of sell. Portfolio management means paying attention to matters such as: • The date a customer’s factory warranty expires • When their loan or lease expires • Whether you can save them money on gas • Their equity position Customer loyalty can be defined in three ways: loyalty to the manufacturer, the brand and the model. Loyalty drops when customers look for a new car, so much so that many sales can be classified as one and done. What are the supporting numbers? IHS offers the following numbers in July of 2018, 2019 and 2020: The loyalty drop works to your advantage with new customers, but do what you can to minimize losing existing customers. Having a data-driven strategy in place is an excellent way to keep customers loyal by knowing what matters to them and speaking up at the right time with the right offer. To reach customers at the right time, monitor channels such as social media, your website, and customers who walk in the door; that includes customers in the service department. Reach out to customers with a call to action. As you focus on the service department, you may want to rethink compensation. Employees on the service side should be compensated as generously as employees on the sales side when contributing to the dealership’s success. Reward their help if they are involved in a sale. When reaching out to a customer, how do you know what you should offer them? People generally have two goals when they are making a big purchase. They want financial help to make the purchase possible, and they want to mitigate the risks inherent in spending a large sum of money. Customers are also interested in saving money. Look for ways customers can find money to spend at your dealership, and set up deals that make sense for them to agree to. Of course, it isn’t enough to sell to existing customers. You also have to look for new customers. Customers have changed their buying habits, and the pandemic has accelerated the change. Some customers still only buy Loyalty Rate and RTM Count July 2018 July 2019 July 2020 Manufacturer 59.2% 60.7% 59.1% Brand 52.3% 54.0% 52.5% Model 25.9% 27.1% 26.0% RTM Count 747,220 776,841 728,656 CONTINUED ON PAGE 20