by Joey Imparto

Car dealerships have been on a roller coaster ride since 2020 – stay-at-home mandates around the world and a shortage of semiconductor chips led to low vehicle inventory that made selling easy. But now inventory is high, and customers facing high interest rates are hesitant to buy. Additionally, electric vehicles are not selling as OEMs had hoped, leaving a pileup on dealer lots.

In times when sales aren’t as easy to come by, dealerships must act as partners to their customers to move inventory. Customers are more likely to buy from dealerships that offer transparent pricing, a variety of purchasing and lease options, and incentives that align with the market.

I meet with dealerships regularly that use Market Scan products, as well as dealerships that are considering adding our capabilities to their operations. Below are six concerns I’ve been hearing consistently as dealerships weather this latest storm.

  1. Inventory is higher than it’s been for a few years, underlining the challenges we’re seeing related to sales.
    Inventory is up by 1 million units compared to the previous year and, with interest rates as high as they are, customers are hesitant to buy. The most effective dealerships will keep inventory moving by finding the best deals for their customers and offering a variety of purchasing options, enabling customers to find deals that best fit their needs.

    During the COVID-19 pandemic, inventory was low due to restrictions on in-person work around the world. With low supply and high demand, customers were purchasing vehicles at whatever price dealerships were asking. Now, with high inventory and low demand, dealerships must relearn how to sell in a competitive market. The best way to do this is by providing customers with options and transparency.

  2. We need to grow our advertising strategy to get more customers in-store.
    When dealerships see a decrease in customers, their first instinct is often to increase advertising. However, with customers seeing a lot of inventory and high prices, even those who visit dealerships tend to be in “hold and wait” patterns, often just browsing or weighing their options. An increase in advertising won’t change this attitude.

    The most successful dealerships will be those that can provide deals that encourage customers to buy during an initial visit. Traditionally, dealerships can only show a few payment options based on agreements with a few lenders. With Market Scan’s mDesking tool, however, they can present the customer with dozens of deals in seconds based on what’s available from many different lenders and with a wide variety of terms.

    mDesking also shows lease options just as fast, so customers can have true visibility and don’t have to settle due to price. With so many options, customers will be able to close their own deals, choosing what works best for their lifestyles and budgets.

    Using the same technology, much more effective advertising can be a valuable tool. Dealerships can build and deploy ads that show lower payments and prices than their competitors thanks to the increased visibility mDesking provides. Customers, who increasingly expect prices online to match prices in-store, will also appreciate the transparency and accuracy of payments.

  3. The uncertainty of election years can make customers hesitant to buy. We’ll just have to keep our fingers crossed and ride this year out.
    Not only should dealerships operate as usual during an election year, but they should not hesitate to try new things and make changes for the sake of the business. Life moves on for consumers regardless of elections, and part of life is ensuring reliable transportation. The dealers who make it out of the other side of the election unscathed will be those that continue to engage with customers, try new technology to build dealership efficiency and provide the latest vehicles and information.

    And what better time to try something new than when the competition is hesitant to do so?

  4. Lease returns have decreased and are expected to continue dropping. This cuts into a valuable source of used vehicles and our portfolio.
    Before the COVID-19 pandemic, dealerships nationwide were seeing as many as 4 million lease returns per year. This year, dealerships are projected to see 3 million, and next year the projection is even lower – 2 million. Leases bring customers back into dealerships when the lease ends, and the returned vehicles provide a source of high-quality used cars.

    Because interest rates are high, customers aren’t thrilled at the idea of paying monthly long-term. Instead of extending their leases or leasing new vehicles, many customers are buying them out to avoid the endless pay cycle that leases create. Weak incentives are exacerbating the problem.

  5. When inventory was low, it was easy to find buyers. Now, we need incentives to encourage customers to purchase.
    Weak incentives weren’t a problem when demand outpaced supply – it was relatively easy for dealerships to find buyers who needed vehicles immediately. However, the pendulum has swung the other way, making a more favorable buying environment for customers.

    Without incentives to balance high interest rates, customers will remain hesitant to buy. Negotiations will continue to favor customers for the time being.

    In environments like this one, it’s imperative that dealerships understand where they stand in the incentives playing field. If a dealership down the street is running incentives on a similar model to what your dealership offers, it’s important to offer something similar to remain competitive. Using Market Scan’s All Makes tool enables dealerships to show customers how their incentives compare with other dealerships,’ increasing transparency and keeping customers in-store.

  6. Electric vehicles are part of the inventory problem – they sit on our lots for a long time, and customer interest has not met industry expectations.
    EV production has far outpaced customer interest, and OEMs are responding by pulling back on EV plans in the immediate future.

    However, unsold EVs remain on dealership lots, forcing dealerships to run incentives and taking up space that could go to more popular vehicles.

    Some customers are leasing EVs to try them out, but few customers are then purchasing them. As it turns out, hybrid vehicles are much more popular and provide an introduction to plug-in vehicles for curious consumers.

    The best practices for selling EVs are the same for any vehicle – provide a wide variety of accurate purchasing and lease options quickly. Sales teams should also be able to answer customers’ questions related to EV ownership, charging and repair.

    To some extent, however, dealerships will ultimately have to wait for consumer sentiment to turn around.

When consumers can afford to be picky about who they work with, transparency is key. The customers who are seriously searching for vehicles are more likely to work with dealerships whose prices in-store are the same as those advertised online, who can speak to other deals in the area and who can provide a wide variety of purchasing options. As always, the dealerships that meet customer needs throughout automotive retail’s ups and downs will come out on top.