Spring has Sprung! This is our favorite time of year and not just because of the great April Fool’s pranks! It is our favorite because the weather changes, the return of baseball , The Masters tournament and it’s the unofficial start of our favorite season of all, Selling Season!
Auto, Powersports and RV dealers all get excited for this time of year as customers get their tax refunds and head to their local dealership to indulge in a new purchase. Although there was a somewhat flat start to the year, optimism continues to build as more and more consumers are acclimating to the new norms of vehicle prices, interest rates, etc.
Our markets have changed drastically over the last few years, and we are finding more and more dealers looking for ways to stay ahead of the curve, maintain COVID level profitability and maximize each transaction with as many products and profit as possible.
At ADS, we pride ourselves on providing holistic solutions for dealers. Whether it be a dealer looking to mitigate the impending negative equity monsoon (see info and video below), a dealer looking to maximize their marketing and customer data spend (https://clientcommand.com/), a dealer looking to right size their reinsurance position after seeing a spike in loss ratio or a dealer looking to provide their sales staff an extra boost with some training and development solutions (see below for course registration), we at ADS have you covered.
Of course, this in all in addition to our high-performance F&I training and development platform that we have been deploying and perfecting over the past 10-years.
If you are a dealer who wants ‘More in ‘24’, then reach out to us to see if we are potentially a fit for what you are looking for.
Richfield, Ohio – Advanced Dealer Solutions is proud to welcome Dave Ditgen as Managing Partner.
Dave has over two-decades of experience working with auto, RV and powersports dealers with their risk management programs and improving their F&I performance.
“Dave’s experience as a producer and regional sales manager for a large P&C and F&I provider make him an ideal Managing Partner for us.”– says Bob Mancuso – President of Advanced Dealer Solutions.
“I have known the leaders of Advanced Dealer Solutions for years and am excited about the opportunity to work and grow with them as well as build out a robust independent P&C offering.” – Dave Ditgen
“We are thrilled to have Dave and his vast P&C knowledge as part of ADS. We look forward to introducing him to our current dealers where he will help them evaluate their risk management programs and insurance needs.” – says Ryan Nelson – EVP of Advanced Dealer Solutions. Ryan went on to say, “We know dealers need a truly independent voice, not just in F&I, but also in P&C offerings and we are confident Dave will be that independent voice helping dealers place their insurance needs”.
Dave is based in Denver, CO and will be focused on building out ADS’ risk management and P&C services nationwide as well as continuing to grow ADS’ F&I development business.
Advanced Dealer Solutions is a full service, dealer development agency focused on automotive, RV, and powersports dealers across the United States. Please contact 844-320-3722 or [email protected] for any inquiries.
Brian Finkelmeyer is the senior director of new-vehicle solutions at Cox Automotive.
My daughter and I love staring contests. Our rules are the same as everyone’s—whoever blinks first loses.
Lately, I’ve sensed a similar staring contest emerging in the new car business between consumers, dealers, and automakers. The question is who will blink first?
Before 2020, when dealership lots were overflowing with new-vehicle inventory, manufacturers were always quick to blink—offering bigger and better incentives to entice shoppers. Total industry incentive spend was estimated to be between $50-$60 billion per year. When holiday bonus cash and $179 lease offers didn’t move enough metal, the OEMs would blink again. They had Enterprise and Hertz on speed dial to unload excess inventory.
Back then, the automakers incentivized their dealers to blink with stair-step, volume-based sales programs. Consumers learned the best way to win a good deal on a new car was to keep staring until the last day of the month. Dealers would always blink when there was a $50,000 bonus check riding on the next unit sold.
But the microchip crisis changed all that. With demand far exceeding supply, average transaction prices have increased roughly $10,000 since COVID, hitting $48,681 last month. With incentives at rock bottom, it appears many consumers have just closed their eyes entirely as they signed contracts for new-vehicle purchases, with an average payment of $762 a month. The days of waiting until the last day of the month have turned into waiting 60 days to receive your pre-ordered new car.
After a two-year drought, dealer lots are starting to fill back up. Inventory levels are now up 77% compared to November 2021. Days’ supply has also climbed from 29 to 53. So, with inventory beginning to build and talk of an economic recession looming, the car companies must be ready to blink, right?
Nope: The car companies are staring straight ahead with no expression on their face.
The average incentive spend in November 2021 was $1,896 versus this November at $1,066. That’s a 43% DECREASE in incentives year over year. Many dealers have begun sounding the alarm of softening demand and the necessity for automakers to bring back better incentives. One dealer recently commented, “The sell ‘til the lot is empty party is over!”
But these same anxious dealers continue to post record new-car grosses in the $5,000-$6,000 range, including F&I. With grosses that strong, the OEMs are in no rush to bring back incentives—they’re waiting for dealers to blink first.
Why are the manufacturers feeling so confident? My sense is that their confidence comes from consumers, the very ones who continue to buy new vehicles absent any significant incentives. New-vehicle sales in November were up 10.8% versus the prior year; luxury sales as a percentage of the total industry continue to grow, hitting 18.2% of the market in November. With continued strong grosses and growing retail sales, the OEMs are in no mood to blink.
But here’s the hard truth. It’s highly unlikely that the industry can get back to the glory days of annual sales in the 16-to-17 million range when the average retail price is north of $48,000. For sales volume to grow, the average selling price will need to come down to expand the pool of potential buyers. Automakers and dealers should take note that Walmart recently outperformed analysts’ expectations in their grocery business, as more affluent shoppers steered away from traditional grocery stores to hedge against higher prices and inflation.
Not surprisingly, there are clear signs of softening demand for more expensive segments with rising days of supply, while affordable inventory segments remain tight. A quick look at the chart below shows that supplies are most constrained for $35,000 and below vehicles in compact SUVs, midsize and compact car segments.
NOVEMBER NEW-VEHICLE INVENTORY ESTIMATES
Given all this, I’m curious to see who will blink first in 2023. Will the automakers blink and begin doling out richer incentives or a more affordable mix? Or will dealers blink, facing rising floorplan costs and decide it’s in their best interest to step back from selling almost every new vehicle at MSRP or above?
I’m not sure how this will all play out in the year ahead, but one thing is true: Until the consumer shows a willingness to blink, the automakers and dealers will be more formidable than my daughter at the staring contest.
The article was written by Brian Finkelmeyer the senior director of new-vehicle solutions at Cox Automotive and was originally published by Cox Automotive.
Used-car retailer CarMax Inc said on Thursday that an uncertain economic environment was starting to take a toll on vehicle demand, sending ripples through the auto sector, which has largely dodged a significant hit from inflation this year.
CarMax shares tumbled 22% to $66.63 to hit a more than two-year low, after the company reported second-quarter results below analysts’ estimates and underscored the impact of inflation and rising interest rates on car sales.
“Obviously, consumers are having to make decisions … I just think they are prioritizing their spend a little differently,” Chief Executive Officer William Nash told analysts, adding that softness in used-car sales continued in September.
Strong demand for personal transport amid inventory shortages has allowed automakers and retailers to pass on higher costs to customers, largely protecting profitability this year.
But analysts have been warning that the industry will soon feel the pinch of rising interest rates and weakening consumer confidence as inventory shortages send car prices to record highs.
Auto research firm Cox Automotive, which tracks U.S. vehicle market trends, cut its forecast for new and used vehicle sales on Wednesday, citing worsening consumer sentiment, while Moody’s changed its outlook for the global Automotive industry to “negative” from “stable” earlier in the day.
The outlook change is driven by a weakening macroeconomic environment and concerns over affordability, Moody’s analysts wrote in a note.
CarMax’s dour comments and disappointing results heaped more pain on the auto sector, which has been reeling from a broader market selloff.
Shares of General Motors Co and Ford Motor Co were down about 5% in morning trade, while those of auto dealers AutoNation Inc, Lithia & Driveway and Group 1 Automotive fell between 7% and 10%.
(Reporting by Priyamvada C in Bengaluru and additional reporting by Joseph White in Detroit; Editing by Anil D’Silva)
The current supply issues are creating a unique ‘sellers’ environment for dealers of all types these days and it is unlike any market I have experienced in my 27 years in the retail industry. Whether you are currently selling cars, RVs, or powersports you are seeing customer demand potentially higher than you’ve ever seen and are rightfully enjoying the fruits of scarcity. We all know this is a cycle, and at some point, we will again see rebates, negotiating, and discounts. The fruits dealers are currently harvesting are well deserved after surviving nearly a decade of margin erosion and a continuous sprint to the bottom of the price chain.
I recently attended a couple of industry events and heard story after story about customers agreeing to purchase, and pay top dollar, for their third or even fourth choice of vehicle. On the surface, this seems like an ideal, highly successful model for dealers to live in. While it has been bountiful, I feel there are some adverse effects as well as some missed opportunities worthy of addressing.
There is an old adage, ‘when perceived value exceeds price, you have a sale.’ Right now, the perceived value is the raw availability to conduct a transaction instead of the traditional checklist of wants and needs. Simply having something to sell is all the value a customer needs to see in a retailer. The dealers I know and work with, want more; they want a customer to see value in the transaction, not just being able to conduct a transaction. Of course, dealers want to maximize on the current opportunity, but they also want to perform the balancing act of earning the well-deserved profit, as well as providing long-term value in doing business with their dealership but for years to come.
Assuming dealers are exceeding their customers experience expectations, then we’ll move on to the value of the vehicle. By value, I am not referring to the features and benefits the customer has spent hours online pouring over, but the additional value a dealer can provide by protecting some of the customers risk exposure. Customers often get caught up in the euphoria of the purchase and forget the reality of owning a car, RV or powersport toy. They forget cars get dirty. They forget RV’s get lived in and spills and accidents occur. They forget their side by side could catch the eye of a thief. The risks of these forgotten realities can be mitigated by dealers including protection products on an addendum.
An addendum allows a dealer to enhance the value of a transaction by pre-selecting one or more value-based consumer products and adding them to a ‘Why Buy Here’ of the dealership. These addendums create a unique presentation opportunity for the sales consultant and most likely leads the customer away from a decision based solely on availability, or worse price. Instead of talking about discounts to meet a competitor’s price, the sales consultant can direct the conversation to the benefit of having a vehicle location device with years of monitoring included, as well as the cash benefit to assist in the event of an unrecovered stolen vehicle. Customers will value peace-of-mind over price if they are educated on the benefits before being ‘sold’ the item or being asked to pay a higher price with no explanation of benefits.
There are a few addendums I have seen backfire on dealers. Pinstripes, although spectacular to some, generally don’t command a $1,495 increase to the cost of the vehicle. And believe it or not, there are some that don’t see $999 of value in a set of plastic mudflaps for their Honda Accord. Whereas customers do see value in knowing their vehicle is protected from everyday spills and stains, as well as having some coverage against the environmental effects to today’s modern painted exteriors. Who out there doesn’t relate to a soda, or ketchup packet spilling on their seats or floorboards at some point in their driving history?
The great part about an addendum is it helps clarify the customers value in the vehicle as well as reminding them of the unavoidable perils of owning a vehicle in today’s world. If the customer doesn’t see value, then the addendum can be removed, and you have a sold vehicle at or near MSRP. If the sales consultant properly conveys the value of each item on the addendum, then it is likely the customer will at least purchase one, if not everything the dealer includes on the addendum. Either way, the dealer and customer are in winning situations; value exceeds cost!
A few suggestions:
Make the addendum something of true value to your customers. Leave out frivolous outdated items nobody sees value in. Today’s buyer is too sophisticated and will see through the gimmicks of what is being attempted.
The success of an addendum is directly correlated in the confidence of the presentation by the sales consultant. If the dealership staff doesn’t believe in what is being offered, it will fail and most likely backfire on the dealer.
Disclose anything and everything. Don’t sneak anything in. Proudly display the addendum and additional cost on the vehicle. Give your team the tools to demonstrate the value of each product being offered. Value based protection products sell themselves when explained properly.
Live it. Like most rewarding actions in life, you cannot be passive. You must be active with your value-added items each and every day. Here are a couple ways to keep everyone focused on the value on in the addendum:
Walk around competitions for some additional Saturday spiff money.
Product knowledge quizzes focused on what makes this product so valuable.
Retain the customer. The addendum should have some form of tie back to the selling dealer. Don’t just sell a vehicle, win a lifelong customer. The real gains come from the harnessed lifetime value of a family in the dealership’s community. Believe it or not, people still like doing business with people they know and trust.
About the author: Ryan Nelson has over 25 years of experience in the retail industry and is a Partner at Advanced Dealer Solutions, a leading independent agency specializing in dealership development in the auto, RV and powersports industry.
To learn more about how the right addendum can benefit your dealership, please reach out to Advanced Dealer Solutions at 844-320-3722 or [email protected]
