You could sum up the ways dealers are navigating this year’s new vehicle market with three words—focus on the fundamentals.
The focus comes out of necessity:
Sales volumes aren’t what they used to be. Dealers know it’ll take a little more effort and energy to maintain their market share, and meet factory sales objectives in the current environment. As one dealer put it, “it’s softer out there, but we’re finding our way.”
Expenses are up. We might take some solace in the fact that AutoNation CEO Mike Jackson now sits on the Federal Reserve Bank of Atlanta. He understands that a rapid rise in interest rates isn’t good for the car business. Most analysts expect interest rates to rise multiple times in the coming months. The only question is when and by how much. At the same time, other expense line items continue to climb. By the middle of 2017, NADA reports that expenses as a percentage of dealership sales rose to 96.6 percent, up nearly three points from 2016.
Margins continue to shrink. Some dealers have seen a little margin pressure relief as a better balance in sedans and SUVs/Trucks is resulting in higher-margin retail sales. But the broader picture remains pretty grim. Net retail profit per new vehicle sold ran nearly -$400 for much of last year, according to NADA. The story seems to be repeating itself so far in 2018, and I’m among those who don’t think the trend will reverse course any time soon.
With these conditions, dealers are focusing on the fundamentals in three key areas of their new vehicle businesses to help maximize their performance in today’s more difficult environment:
- Factory order optimization. I haven’t done a scientific study, but my conversations with dealers suggest that the best performers take their stocking decisions more seriously than they ever have in the past. There’s less guesswork and instinct as they evaluate the Market Days Supply of specific model colors/combinations to order a larger share of vehicles that are likely to sell more quickly. While dealers can’t necessarily dictate their entire inventory with their OEM partners, the additional up-front ordering assessment minimizes doubling (or tripling) up on slow-moving inventory and helps you identify the vehicles that will need more marketing and pricing attention right away. As singer Billy Joel once said, “get it right the first time, that’s the main thing…get it right the next time that’s not the same thing.”
- Inventory age reduction. Just as they have in used vehicles, dealers are recognizing that aged inventory isn’t helping them maximize sales and profitability in new vehicles. Top performers are setting new goal posts related to inventory age, such as no more than 20 percent of all inventory over 90 days at any given time. The age management focus relies on marketing and pricing strategies that account for each vehicle’s value position in the market, in conjunction with inventory age, to retail vehicles prior to crossing the time line. I should add that the age management focus should also extend to dealer trades—it’s always best to send an older-age vehicle, which doesn’t happen consistently if it’s not an area of management emphasis.
- Improved merchandising. In the past couple years, dealers have become better at ensuring each new vehicle listing has the custom descriptions, photos, price and videos to help it stand tall online. But you still see a sizable share of new vehicle listings that lack the right presentation—often due to a lack of attention or time, or the absence of any oversight beyond once-a-month updates. Dealers often complain about the costs/benefits of advertising their vehicles on third-party sites, but the complaint holds less merit if the listings themselves are a problem. It’s also worth noting that once these merchandising fundamentals are addressed, dealers can focus on other ways to make their new vehicle listings more compelling and engaging for potential buyers.
These areas of fundamental focus really amount to the blocking and tackling that’s necessary to make the most of today’s new vehicle business.
Just like sports, when you master the fundamentals, you have the foundation you need to perfect your game and make it more profitable.
Author: Brian Finkelmeyer
Brian Finkelmeyer serves as the Director of Business Development for Conquest at vAuto. In this role, he is responsible for all aspects of vAuto’s New Car business. Prior to vAuto, Brian spent 18 years with Nissan North America in a variety of sales leadership positions. He is a routine presenter and author for various automotive trade publications. His topics focus on the importance of increasing new vehicle inventory turn by having the proper inventory mix, strategically pricing based on age and supply, and insights on maximizing effectiveness of dealers marketing investment.