Handling The “Ominous” Nature Of This Year’s New Car Market

An article in this week’s Automotive News calls the recent slow-down in new vehicle sales and the rise in unsold units on dealer lots an “ominous combination that could mean a return of bigger discounts and lower profit margins” for the coming year.

I’d have to agree on the “ominous” part, especially when you consider that the seemingly imminent threats to new car profitability and sales are nothing new. Some of us have been ringing the alarm bell for some time now.

But the big question isn’t if or when factories will ease up on production, or even how soon we’ll see consumer demand for new vehicles re-ignite once the weather gets better. If history is any indicator, I’d lay odds that the answer to any of these questions won’t be as favorable to dealers as they’d like.

I think the bigger, more relevant question is what can (and should) dealers do to maintain sales volumes and profitability even as the new vehicle market in 2014 becomes more challenging?

The specific answer to this question will vary by dealer, but I think we can all agree that dealers must focus on each side of the consumer demand and vehicle supply imbalance to plot their strategy for the way forward.

On the demand side, dealers will have to work harder to capture their share of customers. To be sure, tomorrow’s customers will be conditioned by factory incentives to seek out the best deal. To that end, I would encourage dealers to make sure their new vehicle pricing, promotion and sales processes convey the consistency, efficiency and transparency that customers will want—and reflect the incentives and other factory offers consumers will come to expect. With fewer buyers, the dealers who “make the deal” on these consumer-driven terms will inevitably sell more cars.

On the supply side, dealers will need to become even more astute students of their markets. As we all know, subtle differences in color and equipment can make or break a new vehicle’s potential appeal with buyers. It’ll be increasingly important for dealers to account for these nuances (to effectively know “what’s on the ground and selling” locally) as they order vehicles that will sell more quickly because they match what consumers want to buy.

Of course, the elephant in the room here is new vehicle floorplan interest rates. Some analysts predict the rates will increase this year, creating more profit margin pressure for dealers. But even if rates climb north, the dealers who most effectively and proactively address the new vehicle demand and supply imbalance will see the least pain.