CARMEL Ind. – Despite predictions by industry experts that independent auto dealers would not fare well during the pandemic, they have largely survived and, in some cases, even thrived. And, while there will be room for more growth in the year ahead, they must continue to evolve to take advantage.
“I’ve been in the automotive industry for more than 15 years and, hands down, this is one of the most unusual markets I have ever seen,” remarked Scott Maybee, president of NextGear Capital. He sees some distinct challenges for independent dealers in 2022, but also some unique opportunities.
Studies by Cox Automotive reveal that dealer sentiment remains optimistic. The market outlook index was down slightly from Q2 to Q3, but still high and, more importantly, above levels recorded in Q3 of 2020 and 2019. The profits index also saw a slight improvement compared to the prior quarter, although independent dealer profit reporting was flat from Q2 to Q3; likely due to increased expenses versus Q2.
Key drivers for anticipated growth in the used car sector are fewer peer-to-peer transactions, resulting in greater volume for dealers, and a growing supply of used inventory in the 5-12 year-old range, which has aged out of a lot of franchise models but still has plenty of service life left. For these reasons and more, NextGear Capital expects the industry will continue to thrive all the way through 2023.
“Despite macroeconomic factors that are beyond anyone’s control, independents can still take command over how they navigate the road ahead,” Maybee explained. Here are a few areas where independent dealers have opportunities:
1.Relentless sourcing – New car production is low, there are fewer lease returns making it into the wholesale market, and fleets are competing for used car supply instead of adding to it; all contributing to an inventory deficit in the used car sector. As a result, used car dealers will want to have a firm grasp on what their customers are looking for and be relentless about finding it. That means expanding their sourcing horizons, whether it’s live or online auctions, other digital sources, the general public, other dealers, or any other source.
2.Take advantage of technology options – Dealers will want to embrace technology to tap into the rich data that’s available to guide their decision making. By using platforms to determine the right inventory, where to find it, how much to pay for it, and how to price it, it will lead to smart acquisition strategies and pricing decisions.
3.Finding the right funding balance – Whether it’s operational working cash or floor plan financing, having cash on hand allows dealers to act quickly when they find the right inventory or opportunity to enhance their dealerships. Successful dealers minimize operational risks by balancing cash and credit to maintain and grow their businesses. An inventory strategy based solely on available cash will both limit purchasing power and the ability to make needed business moves, especially in an unpredictable environment with higher prices. With the right floor plan, dealers can use the extra cash flow to improve infrastructure, hire a needed employee, invest in technology or otherwise put it to work to ensure they’re running efficient and profitable businesses.
“Our data projects retail volume for independent dealers will grow in the coming year, and dealers will need to be ready to adapt in order to capitalize on this growth. Taking advantage of every source of available inventory, digital channels and ensuring they have the capital needed to do it all will be key,” said Maybee. “As today’s consumers look for more value-conscious buys, the independent dealer stands to gain.”