ATLANTA -

As pandemic-induced supply-chain disruptions have sparked a global chip shortage, the automotive industry is experiencing the resulting ripple effect of inventory scarcity. Industry-wide data shows that consumer demand is up, evidenced by higher lead closing ratios, higher gross profits and more total sales on a month-over-month basis.

Yet according to Autotrader, new-car inventory is down 17% and used-car inventory is down 11% month-over-month from February to March 2021.

Automakers and dealers surely feel the impact of the chip shortage problem amidst the growing supply crunch, and success will depend on how they confront these challenges. In trying to balance the current supply-demand equation, dealers have a unique opportunity to innovate, differentiate, gain market share and ultimately thrive.

The following tips include key areas of focus to help drive dealership success while navigating the current inventory crisis.

Be efficient with time and money, focusing on quality over quantity

Don’t let the current challenges create an unnecessary black hole of customer acquisition costs. Dig into any available data to determine which strategies and tools are working best and invest further there, keeping in mind you may not need every provider in the space right now.

Get out of any linear, singular approach to value and quality measurement (i.e., “cost per this or that”), understanding that the world of consumer/device/activity/engagement tracking is far beyond the old ways of thinking.

Use advanced, quality data to your advantage, working smart to ensure you get the right connection with the right consumer at the right time.

Tap Into the spiking certified pre-owned (CPO) segment

New inventory is scarce, but the demand certainly is not going away. Most people buy new not just for the new-car smell but for the peace of mind, and data shows that cross-shopping of new and certified inventory is rapidly increasing.

Train your sales team on creative conversations about the value of used inventory and re-think your selection criteria for certifying a qualified pre-owned unit. Over half of eligible used vehicles never get CPO status, but expanding this business segment now will give your dealership another competitive advantage.

Remember why CPO is so valuable to your profits: it keeps the shopper loyal, on-brand and in-market while also creating back-end extended service contracts, add-on protection products and warranty wraps.

Grow fixed revenue stream

For most dealerships with service bays, fixed ops comprise about half of the overall profit, yet only about one-tenth of a dealership’s marketing investment and focus for growth. Take advantage now to grow this very stable, long-term revenue stream for your dealership.

Open an extra shift, add a few techs, stay open a few hours earlier/later; these simple tweaks can make a big difference in the long run. Gain market share now and retain that profitability for the future, remembering it’s not about a single oil change, it’s about the lifetime potential of every customer you gain.

Also understand that more car owners are researching service online — 5 million consumers researched car repair pricing on KBB.com in 2021 — so your total addressable market is bigger than ever.

Streamline vehicle acquisition and extend slow-moving inventory

The inventory strategy decisions you make now will determine where you land in the widening profitability and market share gap in the coming quarters. Focus on proven strategies that acquire used inventory like Instant Cash Offer, and work your service drive, CRM, sphere of influence and lease-term avenues. Don’t relax on growing, aged inventory just because you’re profiting now on fast-selling, high-priced vehicles.

Extend that slow-moving inventory beyond your backyard to a market where the supply is low, demand is high and there’s greater opportunity by using available data showing where to place inventory for fastest turn and best profitability.

Regardless of the challenges faced by the industry, life goes on for consumers. Events like new jobs, new babies, car accidents and more all keep bringing new car buyers into the marketplace.

Demand continues to increase driven by factors like tax season, stimulus checks and loosening pandemic restraints. Keep a close eye on your inventory in all segments by price, type, and most importantly, days on lot.

Know which segments need creative exit strategies and which need aggressive acquisition strategies to keep your business healthy and profitable. Staying nimble now also will help ensure further success when the market starts to normalize.

Embrace the current disruption as a catalyst for positive change, knowing that the innovations you employ now will help your dealership thrive in the coming months and beyond.

 

Jade Terreberry is the director of dealer sales analytics at Cox Automotive.