Pub 2 2021 Issue 1

Issue 1 2021 15 WVADA 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 IH Markt 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 Loyalty Rate and RTMCount 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 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. continued on the next page