The Situation: Consumers who either need or who think they have to buy a new car right now are struggling to find the vehicle, the financing, and the choices they had six months ago.
“Need a car? You may want to wait”
Further, here is a quote from the newspaper print version to support the premise of the story:
“If you don’t have an immediate need, you are probably better to wait and figure out where the market is heading” -Jesse Toprak, TrueCar Analyst
The article has a whole list of tips for consumers to adopt in sorting out what and if they are going buy a new or pre-owned vehicle. The last of the “tips” is “Hold on to what you are driving.”
The core message to this well written article with charts and quotes from industry gurus is that now is not a good time to buy another vehicle because all the incentives, inventory, and good deals are gone.
So what can the manufacturers and dealer do about this in the Short Term?
- Hello Detroit—Send Us Your Vehicles: The conventional thinking and the view point of this article in The LA Times is that the only vehicles sold in California are Asian or German made. No clear mention is made that this is an opportunity for GM, Ford, and Chrysler dealers to fill this need and sell their inventory like crazy. And stick it to Toyota and Honda—and go head to head with the Koreans—who seem to be on a roll.
- Go Back to Selling the Service Department – This is what got dealers through the recession. Dealership sales and service teams know the drill – call meetings and get everyone focused on selling the servicing of these older vehicles that people are supposed to be replacing right now.
- Do not markup your new car inventory - Dealers with Asian franchises should not be marking up cars that are in demand including hybrids. Here is an opportunity to win some solid good will and trust. Make it clear online and in the showroom that you are going to be fair in your pricing and available inventory.
- Make an offer to deliver a new vehicle to their exact specifications and color in six months. Take a deposit with the order and then offer to maintain their existing vehicle for six months with a 50 percent discount or provide a rental at 50 percent off.
- Sell them U.S. Manufacturer Vehicles – Most Asian dealer franchises also own so called domestic vehicle franchises – so move people into those U.S. made vehicles with creative marketing, sales practices, pricing, and offering.
What are the Long Term Opportunities for dealing with Dealer Inventory Issues?
- Take a “Factory Order” – Manufacturers should use this problem to seize the opportunity to begin to expose consumers to a “Build To Order” delivery channel.
- Get rid of flooring cost – If you pencil the cost of a new vehicle sitting on a dealer’s lot, it has be as much as $10- $20 per day in interest costs and loss of value. Yes, a new car is actually depreciating or “melting” as it sits there waiting for an impulsive consumer to “buy it off the lot” or from inventory. Remember the “Year-End” deals that dealers offer and some consumers wait for.
- Replace Incentives with Build-To-Order Offers - Present the opportunity to “order” the exact color and every possible equipment and option that the really customer wants. Instead of an incentive to move sluggish inventory, offer the “buyer or lessee” a “Planned Delivery Pricing Program” of $ 2,500 to $5,000 discount on the new vehicle that will be delivered next October.
Bottom Line: The consumers who have been trained and incentivized to buy cars off the dealer lot will respond to an offer that gives them the car they really want and not the one salespeople have persuaded them to accept.
Changing the Dealer Sales Model: The idea that new car buyers experience a kind of “temporary insanity” when they get in a dealer’s showroom and sales office that causes them to make compromises and to accept vehicles and financing conditions just to get in the car “today” does NOT have to happen. Dealers (and manufacturers) will save even more money and increase profits and make customers feel good about the whole process of buying or leasing a new vehicle by taking the pressure off everyone by simply “waiting” for the vehicle, the sale, and the profit – and this would have solved the current inventory management problems.
To read the online version of the Los Angeles Times article that I refer to: