Current Macroeconomics And How They Impact the Automotive Industry
What we’ve seen in the automotive industry in the last year and longer is supply chain hurdles slowing the ability to get new cars on lots, and thus demand outpacing new car supply. And now with rising interest rates and inflation at record highs and a recession on the horizon, consumer confidence is decreasing, and along with that goes the inclination to buy new. A weakening demand for vehicles means that OEMs may throttle back their production volumes, while consumers hold on to their vehicles even longer. How does that translate in the service arena?
Reality of Current Automotive Inventory Challenges
The war in Ukraine, supply chain, inflation and fuel prices are all contributing factors to the economy. We know that 71% of owners defect from dealership service by 5th year of ownership, which translates into what we can expect to see in the coming months.1 Growth in sales of used cars will partially be due to declining volumes of vehicles fewer than four years old, and growth of vehicles five years and older. Consumers will be holding onto their vehicles longer, both out of their own budget necessity as well as limited outside options and difficulty in finding the vehicle they might want.
What Dealer Sentiment And Concerns Mean
Dealer sentiment indicates dealers, especially franchises, are more pessimistic than ever about the future, primarily due to the economy and interest rates. Though the most expensive vehicles have plenty of supply, these concerns about the future even outrank inventory in factors seen as holding back the business. COVID remains in the top 10 concerns of dealers.
What You Can Do Now
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All of this—the economy, inventory challenges, interest rates—have many in the automotive industry feeling down about what’s to come. But for those in the service sector, this leads to opportunities for an upswing in business. Fewer cars to buy and higher costs when cars are available means customers are holding onto their vehicles longer, and thus will instead be putting their money toward servicing the cars they have. As Cox Automotive’s Chief Economist Jonathan Smoke noted, “…the brightest opportunities are in fleet sales, where pent-up demand remains robust, and in fixed operations, where strong pricing power and consumer behavior in slowing economic cycles provide a strong foundation for continued healthy revenue gains.”What is important for service centers to do is to bring those customers in, give them a top notch experience by being efficient with operations and customers’ time, reward loyalty, and keep those customers in the pipeline when they’re ready to trade in their vehicle. The Kelley Blue Book team has put together a guide for how to do exactly that. Take a look and take advantage of this opportunity to grow your service bay business and profitability.
Source 1: Cox Automotive Service Industry Study 2021