We’re finally emerging from one of the strangest times in automotive retail history. The onset of the COVID pandemic brought with it several supply chain issues, unpredictable inventory challenges, and inflated pricing that made car sales models look more like cryptocurrency markets than a century-old industry steeped in stability.

Keeping an eye on how things are shaking out in the industry is critical to our success moving forward. We took stock of what we’re seeing and developed these predictions to help guide our path for the coming year and will hopefully provide you insights that will help inform your success, too.

New-car inventory levels are coming back … slowly 

Pre-pandemic, dealers traditionally had around a  two-month supply of new cars in stock available for purchase that day.

We tracked inventory levels among FRIKINtech dealers and found the lowest point of new-car inventory in August 2022.

Astonishingly, at that point half of our dealers had fewer than 35 new cars in stock. As of December, only 24% of our dealers are still under 35 new cars available for sale. 

It’s important to note that every single dealership in our network has seen an uptick in the number of new cars on the lot. This is a trend we expect to continue for all parts of the automotive supply chain. We will see more availability for consumers and shorter wait times for vehicle repairs as parts become more plentiful, too.

As new-car availability tips back to levels the American population is more accustomed to, we will see a few months of dealership sales staff go into shock over their paychecks. 

The days of $5,000 front-end deals where customers are just happy to get a car are over. 

As quickly as the new-car inventory levels build, dealers will be back to the kind of grosses they were seeing prior to COVID disruptions. However, we do not believe dealers will be as fast to hire large sales teams. We think many will test the outsourcing waters before hiring full-time employees to plug holes in processes.

Independent shops will be busy thanks to older average cars

The average car on the road is the oldest we have seen in decades. At 12.3 years, the average car on the road today is a 2010-2011 model year. But those years weren't what we think of as “old,” featuring manual transmissions and hand-crank windows. 

On the contrary, in 2010, most cars were loaded with the same convenience and power features you find on brand new cars today. That means they're very expensive to repair.

Independent service shops will see more workload to maintain these older cars as dealers continue to pull only the most loyal and warranty-seeking customers. Dealerships are more expensive for repairs, and that’s a stigma that they won’t be able to shed. Dealers will need to find more ways to create loyal customers.

Loyalty is going to be a big driver for dealers and OEMs in 2023 and 2024

For the past two years, customers have been buying whatever they can get. Their preference was to buy from a brand they knew and trusted, but if they couldn't get something from that brand, what option did they have? 

People who could afford to hold onto their cars were turned off by the above-sticker asking prices their dealers were demanding, and now they don't feel as good about doing business with that dealership again. Further, the current dealership sales staff has forgotten the true principles of selling as they have become "order-takers" at a single price point.

 Negotiation hasn’t been part of the process for more than two years. The art of negotiation has been forgotten, and the missing panache that came with it has angered many customers.

Earning customers back will require dealers and OEMs to incentivize and remind their past customers of why they should be giving them another chance.

It's time to rethink digital retailing

The promise of a consumer buying a car online or doing 80% of the paperwork on the dealer website is still just that: a promise. We should be striving toward that goal, but it’s time to admit that digital retailing made promises it could not keep.

It promised dealers a customer, but it only gave leads. In reality, it only replaced the "Get ePrice" button.

Digital retailing works if the numbers the customer sees are the same ones the sales manager presents; it works if the customer and dealer are working in the same tool; it works when the dealership and the consumer both trust it.  

Instead of submitting a lead or picking up the phone, a customer who sees an enticing payment within a digital retailing device will just drive to the store. When it comes down to it, digital retailing is a fancy payment affirmation tool. Upon arriving at the dealership, the customer typically finds the payment they saw was an estimate and nowhere close to reality. This is a major impediment to building trust and loyalty, and to closing a sale.

For most dealerships, digital retailing is broken because it is too complex and does not compliment the dealership's process. Digital retailing needs to be implemented within the technologies dealers already use or digital retailing technologies need to replace the website, ILM, CRM, and DMS systems themselves.

We’re going to see digital retailing technologies continue to focus on things like chat and advertising components, because they lack the ability to displace the dealer's current processes.

Digital retailing tools will be less focused on enhancing payments in 2023 and more focused on engaging shoppers in a meaningful way, particularly since their worth is only associated to how many leads they generate for dealers.

 

Alex Snyder is founder and CEO at FrikinTECH