A Look at What's to Come
Q4 & 2021 Predictions
As we head into the end of a very strange and challenging year, we do see a better 2021 on the horizon. This year was difficult for business with complete shutdowns in most states, economic uncertainty and catastrophic joblessness. (Thanks to the Feds for PPP!) Of course, the automotive industry took it on the chin but the third quarter has produced a strong comeback . Let’s see what Q4 and early 2021 have in store!
New Cars
While demand for new cars is returning, the supply just isn’t there. At a time when dealers are typically anticipating a “year-end clearance,” some are wondering if they’ll have any stock at all. The shutdowns put the industry behind by 3 million vehicles! While production is pumping out cars around the clock, the Detroit 3 are still 65-days worth of stock behind last year at this same time.
That said, sales are still up. Ford reported its best third quarter since 2005 for pickups. But dealers are running dangerously low on supply - some with less than 30-days worth. And they claim, they could’ve sold more if they had better inventory; hence why D3 automakers have been focusing on pickup and SUV production specifically.
Looking at imports, Toyota, Lexus and BMW had less than 40-days worth of supply at the beginning of September, and sales were still down considerably year-over-year. Luxury brands linger around a 50-percent reduction in Q3 compared to 2019, and other imports are down on average by 10-20 percent. One has to ask… are the OEM’s purposely keeping Inventory short in many cases to reduce the need for “trunk money”!?
Used Cars
As new car prices soar and consumers become more uncertain about the economy going forward, the industry is cautiously optimistic for Q4 new car sales. While used car sales recovered much faster and grosses have rocketed, we saw wholesale prices peak at the end of August, an indicator that supply was still tight, but we now see slight reductions in these values as inventories expand. We attribute that to Increased new car sales and a larger pool of used vehicles as off- rental and off-lease cars finally start appearing in the wholesale markets. Overall sales decrease as pent-up demand from the beginning months of the pandemic have started to even out.
Despite the typical seasonal ebbs and flows, used car prices and volume will likely stay on the high side through the beginning of 2021 as new car shortages continue. One dealer near Akron, Ohio has sold used cars at a 1.9:1 ratio to new cars as of August, far surpassing the 1:1 industry standard.
Digital Age
Part of Ron Marhoffer’s success is their commitment to buying quality used vehicles in online auctions, which have become popular over the past few years, but have become the norm since the pandemic started.
And while online buying is now vital to survival, so is online selling. Consumers want a virtual process, as we discussed in our blog in last quarter’s newsletter. Letting people buy virtually and providing delivery helps traditional dealers compete with online retailers like Vroom and Carvana. BDCs play a vital role in feeding that online sales pipeline by nurturing leads and handing off the quality ones to the sales team to work up deals. Even in a traditional setting, every dealership should be utilizing a larger more aggressive BDC and an increased emphasis on expanded F&I operations. The cost consideration is a no-brainer when you look at the sales results.
Looking at the other side of the business, letting customers schedule service online, chat with service staff via webchat and/or text message and providing delivery or contactless drop-off/pickup are all ways to keep your fixed ops running and profitable. You must also consider providing an online payment solution.
2021
As we move into what the industry hopes will be a much better year, 2021 does hold promise. Dealers were betting on round-two stimulus packages to provide consumers with down payments, but it looks like that will never happen . Luckily, the government has pumped more than $4 trillion into the economy, benefiting the auto industry in recent months. That paired with historically low interest rates and affordable gas prices is keeping things moving in the right direction.
We’re also seeing vastly increased consolidation, much like we saw after the 2009 financial crisis. New England and the Northeast overall has seen strong buy-sell activity. The pandemic has given market consolidation the same shove forward as the 2009 economic crisis did. We predict at least a 15 percent reduction in dealer rooftops in the Northeast next year.
Also, digital isn’t going away. So if you don’t want to be that 15 percent, it’s time to incorporate new communication technology into your sales and service strategy. And, if you’ve been considering selling your dealership, now is the time to take that leap.
