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Could Auto Industry Trends Affect Your Dealership?

Jul 15, 2016

Sometimes, you can get so busy in the day-to-day job of running your dealership that you neglect to take a step back and look at the big picture. Researching macro trends impacting the automotive industry is a valuable strategic planning exercise.

By pinpointing and understanding these trends, you may be able to uncover new opportunities and avoid potential problems. And this could lead to increased sales and profits down the road.

Safety is in focus

A prevalent trend over the past couple of years has been a sharper focus on vehicle safety features. Lane-keeping assist technology, forward-collision warning systems and backup cameras are a few examples of recent safety features that are becoming more common in vehicles.

This trend is being driven by both consumers and regulatory authorities. Families buying cars for teenagers are especially interested in such features, because fatal crash rates are three times higher among 16- to 19-year-old drivers than among other drivers, according to the National Highway Traffic Safety Administration (NHTSA). On the regulatory side, backup cameras will be required in all new vehicles starting in May 2018.

Adding these kinds of safety features will, of course, kick up the total vehicle price. For example, adding a backup camera will cost between $40 and $140 per vehicle, according to NHTSA estimates. With rising costs squeezing already tight margins on new vehicles, you may need to rely even more on your parts and service department to drive future profits.

CAFE standards are rising

Regulators enforce Corporate Average Fuel Economy (CAFE) standards that require vehicles to meet specific targets for fuel efficiency. The NHTSA has set standards to boost CAFE levels rapidly in the coming years.

Specifically, the final passenger car and light truck CAFE standards for vehicle model years 2017–2021 will require an average combined fleetwide fuel economy of 40.3 to 41 miles per gallon by model year 2021. Like required safety features, mandated higher fuel efficiency standards also increase vehicle costs and could crimp your profit margins going forward.

Gas prices remain low

The plunge in gas prices that began in the summer of 2014 is changing the kinds of vehicles that Americans purchase. For example, sales of pickup trucks and SUVs rose 10% last year, according to sales tracker Autodata, which was almost twice the increase in overall vehicle sales.

Meanwhile, sales of some fuel-efficient vehicles fell by double digits. This includes the Toyota Prius hybrid, which saw sales fall by 12% last year, and the Chevrolet Volt plug-in electric car, which saw sales fall by 23% last year.

One positive development for dealerships of this trend is that some consumers are putting part of the money they’re saving at the pump toward the purchase of a more expensive new vehicle. This could increase your dealership’s revenue and profits if the trend continues.

While oil and gas prices can be volatile, most analysts don’t expect them to rise sharply in the near future. Therefore, you might want to take these sales trends into consideration as you plan strategies for what kinds of vehicles to stock going forward.

Customers are more informed

Thanks to the plethora of information available online and via mobile devices, many customers walking into dealerships today are more informed about vehicle choices, features and prices than they were a few years ago. What’s more, this is likely to continue, with car buyers becoming even more knowledgeable in the future.

This trend affects dealerships in many ways. For example, it can be harder to maintain profit levels when customers know the dealer cost of a vehicle, giving them an edge in negotiations. Also, many customers today say they prefer a faster and more hassle-free car-buying experience. Consider these factors in your future vehicle pricing and salesperson training procedures.

Capitalize on trends

Now would be a good time to think about how these macro trends could impact your dealership in the future. As you do, make plans for how you can capitalize on them going forward.

Sidebar: New vehicle safety technology unveiled

The National Highway Traffic Safety Administration (NHTSA) issues Federal Motor Vehicle Safety Standards and Regulations to which vehicle manufacturers must conform. In its Priority Plan for Vehicle Safety and Fuel Economy, 2015 to 2017, the NHTSA describes some of the broader changes taking place in vehicle technology that are designed to increase safety.

Among these changes are in-vehicle crash avoidance systems and vehicle-to-vehicle (V2V) communications that employ crash-avoidance applications. According to the plan, the NHTSA intends to require V2V capabilities in new vehicles at some time in the future.

Other NHTSA vehicle safety priorities are the Driver Alcohol Detection System for Safety, which prevents vehicles from being driven by drunk drivers, and seatbelt interlock technology. This technology would prevent a vehicle from being driven if the driver and passengers aren’t safely buckled in.

Dealer Insights - July-August 2016

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