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September sales decline but SAAR stays steady; the dealership of the future starts with service; 2020 fixed ops trends to consider

If September results are any indication, this year’s new car sales roller coaster is on a pretty steep downward run, thanks to the high price of new cars and the cost of borrowing. According to Automotive News, in fact, virtually every automaker reported declines for the month of September – even Subaru, which had scored positive sales results every month since 2011. They were down 9.4%, but larger automakers saw even deeper losses: Toyota dropped an overall 17%, Ford an estimated 12%, and GM an estimated 10%.

Most analysts blamed the high price of new cars, along with interest rates and the short sales month – Labor Day Weekend sales were counted in August this year. That shift resulted in 10% more August sales, a boost promptly given back with a 12% overall loss in September. Via Automotive News, here’s what Edmunds analysts have to say:

“All year long we’ve been talking about high prices and rising interest rates keeping shoppers on the sidelines, but in the third quarter those pressures eased up just enough to get consumers back in a buying mood. If this momentum continues, we expect a solid finish to the year.”

— Jeremy Acevedo, Edmunds’ senior manager of industry analysis

Indeed, there is a silver lining: first, even with the sales decline, SAAR topped 17 million for the fifth time. And if pricing/interest rate pressure eases into the fourth quarter, dealerships could very well see purchase-ready buyers.

Read the Automotive News article here.

The Dealership of the Future Starts with Service

To hear McKinsey & Company tell it, the practice of selling cars at a dealership is fading away, under pressure of profit erosion and disruptive technologies. In an article entitled “As dramatic disruption comes to automotive showrooms, proactive dealers can benefit greatly” McKinsey & Co. researchers found that dealership profit erosion and competitive forces are already forcing change. Here’s an excerpt:

“Average dealership operating profits plunged from 8.9 percent in 2015 to 1.7 percent in the first half of 2018, while gross profits fell from 3.3 percent to 2.4 percent over the same period. Dealership sentiment is also shifting from optimism to pessimism based on the most recent industry research.”

The article examines sales pressures and the shifting automotive marketplace, including disruptors in the market like Carvana, and third-party digital channels. As a result, they found that successful dealerships in the future will need to get creative and leverage technology to create new profit centers – all while relying on a streamlined and modern version of the service department. Of that, the report is clear: Consumers prefer going to dealership service centers, and millennials do not like to take care of their own vehicles. Here’s what McKinsey says about it:

We also project that the combined “do it for me” maintenance-service and aftermarket-parts profit pool will grow from about $40 billion to between $42 billion and $46 billion in 2030, while franchise service and parts will grow from $54 billion to between $57 billion and $60 billion, due to the growing number of cars on the road and increased parts costs.

The bad news? By 2030, increases in battery electric vehicles will partially offset gains made by service.

Read the McKinsey & Company article here.

2020 Fixed Ops Trends to Consider

If the future looks bright for service drives, the near future – as in next year – looks even better, just as long as managers pay attention to changes in consumer patterns, embrace technology, and focus on customer service. According to an article on CBTNews.com, here are a few trends to consider for Q4 2019 – and as we turn toward 2020:

Certified Car Service Dealer-FX

Price Increases: As new car prices go up, so to will used car prices. Per Thinknum Alternative Data: “The average price of a used car for the months of June, July, and August 2019 was right around $22,000, at least $1,000 more than the summer of 2018.” Increases in used vehicle sales and prices generally mean higher reconditioning costs.

Millennials: As millennials continue to settle down into jobs and homes, the one thing they aren’t doing is vehicle service – there just aren’t as many weekend oil changes happening on driveways in the suburbs anymore. For example, an Ally Financial survey showed that millennials and Generation Z paid an average of $2,334 for vehicle maintenance and repairs in the past five years.

 Read the CBTNews article here, and the Auto ReMarketing article here.

What’s Next?

Click here to learn more about Dealer-FX ONE Platform. At Dealer-FX, our mission is to help automotive dealerships transform the customer experience by providing leading-edge marketing services that help to deliver the right message at the right time — via the right digital channel. How can we help you?

This year, technology is finally going to take over the world of automotive retail. Force a wave of transformation. And make everyone rethink everything they ever learned about selling and servicing cars.

Balderdash.

The truth is that every turn of the calendar sees its share of new technology solutions and ideas, all designed to make the business of automotive retail easier, better, and more profitable.It’s an incremental evolution of technology and human advancement, the process of which washes out the bad ideas and strengthens solutions that offer value to customers, dealers, and shop owners.

Just think about how far we’ve come: Today, there are apps that sell vehicles via a subscription. The role of a technician is more like that of a forensic technologist than a mechanic. And today, sensors are basically driving vehicles down the road without human assistance.

The point? It’s progress, and how it makes everyone more profitable and powerful. So in honor of new ways and greater opportunities, here’s a look at what you just might see more of – and less of – in 2019:

Not Hot: New and Used Vehicle Margins

It’s getting to the point where it costs money to sell a new car – and used vehicle margins aren’t that far behind, all things considered. More competition, a saturated market, and a somewhat strange consumer fixation on crossovers has put the market in a state of flux. As a result, that puts more pressure on the service department to run a tight ship and increase profitability, build customer retention and even serve as a source of sales.

None of which is surprising. The service department has long been a foundational part of any dealership. This time, however, there’s more competition on the service side of automotive retail, and service managers will need to bear down on cost and make investments in technology to streamline operations.  

Red Hot: Used Car Reconditioning

Used vehicle reconditioning will be one of those red-hot areas in 2019 – if it isn’t already. Turning around used vehicles for resale quickly (and for less) is increasingly part of the crucial role service departments play in helping boost profits.

Dealership managers should be focused on creating a reconditioning process that emphasizes turnaround speed, lowering parts and labor costs – and ensuring efficiency throughout. With a glut of late-model used cars just off lease, managers who know well their “time to line” will gain the advantage of moving more inventory and perhaps help to stabilize margins. Using technology to improve communication between managers and techs is a key step toward reducing the time gap between trade-in and re-sale.

Not Hot: Blockchain Technology

Okay, okay. It’s arguably bitcoin’s greatest gift. But it’s also the ultimate buzzword. Fact is, blockchain didn’t exactly set the automotive retail world on fire last year — unless talk and speculation counts. It undoubtedly will, one day – but maybe not quite yet. There’s just so much to like about the decentralized ledger technology, especially for industries with outdated records tech and mountains of paperwork (see: automotive). Yet something this big takes a long time to develop, and many experts warn about things like transaction speed and standardization slowing down implementation.

Red Hot: AI Technology

Hello, Alexa. Hi there, Google. Our erstwhile artificial assistants are helping to monitor and drive vehicle maintenance – plus much more. Indeed, it’s already happening: many newer cars use some form of AI to monitor hundreds of sensors to detect possible problems and maintenance needs. In fact, Volkswagen and Microsoft recently announced a partnership with the intention of using AI to improve the ownership experience. That includes predictive maintenance, and Over The Air (OTA) software updates, among other innovations.  

Fact is, AI is in the service bay at increasing levels. From predictive replacement part ordering to claims adjustments and predictive maintenance and repairs, the name of the game is efficiency. Look for increases in AI across the dealership as it proves effective at lowering costs and streamlining workflows. One need only look at the emergence of chatbots as an example of how AI technology can work with employees to create timely and complete experiences.  

Not Hot: Autonomous Vehicles

It gets all the headlines – for good and bad reasons. As a result, the march toward self-driving vehicles is anything but a straight line to customer driveways. As advanced as self-driving tech companies have become, and despite their advancements on the commercial side of transportation, ethical and technical issues are to be sorted out. Of course, most of us know about the accident that killed a woman in Las Vegas as she crossed the street with her bicycle, but there have been other accidents and glitches as testing has increased.

Not that any of this has stopped the self-driving phenomenon. The benefits in terms of safety, efficiency and fleet use are too strong for the technology to not make an indelible impact. As testing continues onward, look for more measured and cautious progress as autonomous vehicles begin to find their place in the automotive world – including service and repair.

Red Hot: Electrified Vehicles

All manner of electric vehicles are available today, and that selection is growing quickly. From hybrids to plug-ins and daily-driver EVs, car buyers are being treated with more power and greater efficiency than ever. One only need pay attention to the number of Teslas on the road – and charging stations available. Worldwide, in fact, EV sales reached around 1.4 million vehicles.

But that’s not the hot change for 2019. What is even more significant is the accelerated switch from the long-standing 12-volt vehicle electrical system to a 48-volt system. Up to now, we’ve seen 48-volt systems in a few luxury vehicles, but it looks like the transition is moving into the mainstream. That’s likely driven by demand for gadgets and power-laden features such as advanced audio systems, ambient lighting and start-stop functionality — not to mention electronic turbo systems and mild hybrids.

More practically, however, is the reality that automakers have been shifting from mechanical parts to electronic componentry under the hood. Ultimately, after more than 60 years the power needed for vehicles is now too much for 12-volts to handle. It’s a change that may have a direct impact on your service techs, as they will need to know how to work with 12-volt systems and 48-volt systems. And it is yet another example of how technology is helping to drive a more powerful and robust automotive world for 2019 — and beyond.