Pub. 19 2020-2021 Issue 2

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 21 new jersey auto retailer W W W . N J C A R . O R G Consumers will continue to appreciate the safety aspects of at-home service pickup and delivery or retail delivery but will come to really appreciate the convenience. Dealers who can- cel these services when the pandemic subsides will be shoot- ing themselves in the foot. According to Cox Automotive’s COVID-19 U.S. Consumer and Automotive Dealer Sentiment research, five out of 10 vehicle owners prefer to use service pickup and delivery the next time they need to service their vehi- cle at the dealership. The same internal research revealed that, despite high consumer demand and preference, many dealers plan to discontinue offerings like digital retailing and service pickup and delivery once things get back to “normal.” Dealers who elect to continue offering these solutions post COVID-19 will develop a clear competitive advantage over others, with sev- en out of 10 vehicle owners likely to choose one dealership over another based on the availability of service pickup and delivery. Credit challenges will drive an increase in vehicle subscriptions over traditional buying or leasing — especially in the subprime market A subprime auto loan is a type of financing for a car purchase that’s offered to people with low credit scores or limited credit histories. Over the last few years, new car prices have risen high- er and higher, making it harder for some consumers to afford new cars. To counter this trend, the industry has responded by extend- ing the average loan duration and subsidizing the financing costs. And now COVID has caused additional financial strain across America. Despite efforts such as stimulus pack- ages, lots of responsible people have experienced unexpected financial hardships. I expect credit challenges to drive consumers to the subscription model, which also provides more flexibility ( i.e., month-to-month payments vs. long-term commitment ). This hunch is validated by our research, which indicates half the shoppers now say they are interested in single-vehicle subscription. Why would subscrip- tion work for some consumers who struggle to get reasonable interest rates with traditional ownership? Traditional credit underwriting focuses on predicting the likelihood of a consum- er to make years of payments in a row. Subscription, which in most cases is a month to month commitment, doesn’t require a multi-year underwriting decision. Instead, it relies more on the likelihood of the consumer taking care of a vehicle and return- ing it in good shape. Many of us know people that have historically been responsible but have recently taken hits to their financial situation. These individuals may not score well on traditional credit models, but these consumers are likely to drive safely and take good care of their vehicles. By owning a fleet of subscription vehicles, dealers can take advantage of a low cost of commercial borrowing and “lend this low cost of capital” to consumers that are likely to take care of the vehicle but don’t qualify for favorable financing rates. Electric growth will hit the brakes, but not stop No, it doesn’t take a rocket scientist to surmise that electric vehicles ( E.V.s ) aren’t a pressing priority for automakers, or that consumers are pushing out vehicle purchases amid eco- nomic uncertainty ( approximately one in three shoppers is currently delaying purchase ). How long an E.V. stall-out will last is the big question mark. The reality is that the future is/will be electric, as carmakers must work toward meeting strict emissions targets. Many manufac- turers have spent billions of dollars in research on E.V. technolo- gy, which has been underway for years. Although the vast majority of Americans agree that if we all drove electric vehicles, we could reduce oil consumption and pollution, only a third would consider buying one anytime soon. And it’s largely due to the fact that the industry is still early in when it comes to educating and delivering proof about the real or perceived consumer pain points of cost, access to charging and battery health. Don’t forget that historically low gas prices make combustible engines more attractive than E.V.s to many consumers. I encourage everyone reading this to keep an eye on the E.V. market and be open-minded when it comes to purchasing your next vehicle and encourage your friends and family to do the same. Kelley Blue Book tells us the average 5-Year Cost-to-Oper- ate savings is significant for some E.V.s versus their gas-powered counterparts — 58% overall, with 60% in fuel savings and 25% in service cost savings over five years — so E.V. costs less. If you’re worried about charging, as many consumers are, keep in mind that 80% of charging takes place at home or work — if you have that luxury. As it relates to batteries, it’s reasonable to be concerned about battery health. After all, 51% of an electric vehicle’s value is tied to the E.V. powertrain versus the pow- ertrain of an internal combustible engine being 18%. It’s also promising to know that most E.V.s come with 100,000-mile warranties and that battery enhancement gets introduced every year to improve range, safety and cost. Joe George is President of Cox Automotive Mobility. By owning a fleet of subscription vehicles, dealers can take advantage of the low cost of commercial borrowing and “lend this low cost of capital” to consumers that are likely to take care of the vehicle but don’t qualify for favorable financing rates.