9 Challenges That Are Affecting Car Dealerships

April 3, 2022

The health of the automotive retail sector depends entirely on that of the auto industry at large. Many of the challenges car dealers face today come from changing trends, technological progressions, world events, and fluctuating customer expectations.

Here are the top nine most common challenges car dealerships face today and what the industry is doing to respond to these new issues.

Less Dealer Loyalty

Although customers have historically remained loyal to brands and dealerships, the unique challenges have incentivized customers to shop elsewhere in the past five years.

According to a 2021 IHS Markit market study, customer loyalty to their dealerships has dropped 1.6% in the past five years, compared to a 0.2% drop in brand and manufacturer loyalty. This phenomenon is a significant concern for car dealerships, as the most loyal customers are also the most profitable.

Possible solutions include proactive communication between the dealership’s general manager and the existing customer base, such as personalized messages, advantageous trade-in offers, and appealing upgrade plans.

Increased Competition

Despite lockdowns, shutdowns, and other restrictions in the past few years, the National Automobile Dealers Association (NADA) reported a 3.1% increase in auto sales in 2021 compared to 2020, with a forecast of 3.4% for 2022. Sales are up again, and traditional brick-and-mortar dealerships face higher competition with online-only retailers than ever before.

Although staying ahead of the increasingly online-only competition is one of the toughest challenges today, one of the methods dealers employ is increasing their focus on the services-to-sales process.

According to a Mastermind study, customers who serviced their vehicle at a dealer are 2.5 times more likely to buy their next car at the same dealership.

High New and Pre-Owned Prices

External factors such as the ongoing chip shortage and increased customer demand have resulted in historically high prices for new and pre-owned vehicles. The Cox Automotive-Manheim Used Vehicle Value Index for mid-April 2022 is 221.4, 10.9% higher than the 2021 annual average.

Due to these rising prices, car dealerships face unprecedented difficulties acquiring in-demand pre-owned cars. One potential solution is leveraging their marketing tools to avoid overspending at used car auctions and directly target customers selling cars.

Used Car Pricing and Aging

The longer used cars spend on the lot, the less likely they will leave it. Dealerships make most of their revenue selling used vehicles within 30 days of acquiring them. Used cars that spend more than 45 days on the lot are more challenging to move.

The best way to keep used cars from aging on the lot is to be more aggressive with used car price fluctuations, monitor the used inventory more closely, and implement an aging policy to prevent vehicles from remaining in stock longer than needed.

Difficulty Securing Inventory

Traditionally, car dealerships use trade-ins and auto auctions to bolster their used inventory. However, an IHS Markit study indicates that the average age of vehicles on American roadways is now more than 12 years old, indicating that consumers keep their cars longer instead of selling or trading for newer models.

The Ride-Sharing Industry

Ride-sharing apps are often viewed by consumers as beneficial alternatives to car ownership, especially in urban areas. The ride-sharing industry is growing every year, with current predictions estimating it will reach $285 billion in 2030.

Despite the disruptions introduced by this relatively new service, it hasn’t completely replaced consumers’ car-buying needs. Many car dealerships are taking further digital retailing steps by offering apps of similar convenience, allowing today’s consumers to shop for new cars with the same ease.

External Economic Factors

Current world events continue introducing new challenges and economic issues beyond the control of the auto retail industry. Although the average auto loan interest rates have decreased since the last peak (4.96% in December 2019), other factors such as ever-rising fuel prices keep consumers away from the dealership because a new car simply isn’t within their budget.

Changing Customer Expectations

In December 2021, Millennials became the biggest generation of potential customers for car dealerships. Once believed to be the generation most adverse to car buying, this prediction has been proven untrue; they simply prefer to shop differently.

Instead of spending time at the dealership as their Gen-X and Boomer predecessors would have, Millennials prefer to use online tools and research their potential new vehicles long before visiting the lot.

Dealerships must adapt to these changing demographics by offering more online options like trade-in valuation tools, click-to-buy, or online pre-approval.

The Unique Selling Proposition

A Unique Selling Proposition (USP) is the dealership’s unique quantifiable traits and factors that help it stand out from the others in the marketplace, especially within its geographic area.

A good USP comprises three factors:

  • It makes a promise to the customer that the dealership always delivers on
  • It provides a valuable service to the customer
  • It is easy to understand (and, in turn, easy to advertise)

Although each dealership’s USP is different, typical examples include in-house leasing and financing support, extended service hours, lifetime powertrain coverage, free lifetime oil changes, on-demand test drives, 30-day tire price guarantees, tire storage services, and complete inspections and reconditioning.

Shop at Hometown Chrysler Dodge Jeep Ram Today

At Hometown Chrysler Dodge Jeep Ram, we aim to be your one-stop destination for all of your automotive needs. Whether you’re looking for a brand new Jeep, a used Ram truck, auto parts for your vehicle, or need the help of our service department.

We also offer online trade-in valuation and financing help, even if you have no credit.

For more information about our services, call us today at (517) 940-8717.

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