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What Is The Future Of Car Dealerships?

  • by Josh Amaton
  • October 13, 2022

“It was the best of times… it was the worst of times.”

Doesn’t that classic Dickens quote perfectly summarize the last few years for auto financing and car dealerships?

On the one hand, the COVID-19 pandemic was the most severe disruption to our businesses most of us have ever seen. On the other hand, it also helped disrupt the ride-sharing and fractional ownership technologies that presented such a threat.

Coming out of COVID, we all benefited from the pent-up demand and low-interest rates that created an almost “perfect storm” of auto financing. Credit unions had a great 2022 in auto lending, gaining volume and market share. Dealerships saw a surge in orders – but ran up against supply chains that were so tight they literally didn’t have enough cars to sell.

As an industry, dealerships simply had to learn how to make more money selling fewer cars – and they did! At the recent Lending Tech Live conference, Thomas King, president, data & analytics division and CPO at J.D. Power, shared data showing that demand for new vehicles drove a 229% increase in gross + F&I in 2022 (vs. 2019), even as retail sales fell 11%.

As 2022 winds down, it’s no secret that inflation is skyrocketing, interest rates are rising, and chatter about a possible recession is incessant. The ramifications for the auto sales industry could be huge, making it the perfect time to start preparing for the future by discussing the steps dealers and their financing partners need to take to prepare for a bumpy road ahead.

Technology is changing the retail experience

At the recent Lending Tech Live conference, I sat on a panel with auto sale industry executives from across the country. What we discussed mirrors what I hear almost every day from my colleagues and clients in the industry… technology is changing everything about the car buying experience, and this trend will only accelerate in the future.

Fintechs are aiming to disrupt the entire car-buying and loan-origination experience – and it’s not exactly news that some of the bigger ones aim to replace car dealers in totality.

Fortunately, many of the same innovations that fintechs use are achievable for dealerships, and many of my clients are already beginning to implement them. Online car ordering, remote test drives, virtual reality experiences… dealerships can meet and beat many of the fintechs at their own game.

What can’t be replaced is a high-touch retail experience – and that is exactly where I see many of my dealership partners focusing their energy. Training sales staff to focus on providing outstanding customer service helps create an advantage that direct sales and online-only competitors can’t match. Speeding up processes to help customers obtain financing while completing orders speedily is another way we can win.

OEMs want control – and more

When I talk with my partners in the industry, the subject of OEMs comes up often. In today’s low-inventory environment, dealerships often feel like they are at the mercy of manufacturers since there’s usually no room to move off of the MSRP pricing.

With new cars selling almost as soon as they are available and fixed prices outside of our control, dealerships, in many cases, are essentially just taking orders – even more evidence that we need to focus on winning that retail touchpoint.

As an industry, we are watching some of the biggest OEMs begin to explore the direct-sales model, usually in electric vehicles (EVs). Both Ford and GM are selling EV vehicles directly, while Ford CEO Jim Farley spoke in June publicly about the desire to move vehicle sales 100% online with a fixed pricing model. GM is spending $35 billion to switch over to an all-electric vehicle platform by 2035.

The radical decline in dealer incentives puts even more pressure on the current model. It’s not surprising that incentives aren’t necessary for the current market, but when the inevitable turn comes, will our OEM partners move quickly to bring them back? That is currently the billion-dollar question.

The future is electrifying…

The push toward our electric vehicle (EV) future was accelerated by the official vote passing in California to ban the sale of new gasoline-powered vehicles by 2035. With additional incentives and subsidies encouraging the purchase of EVs and other green technology across the nation, there will be some big adjustments for dealers and lenders alike in the years ahead as consumer demands continue to shift.

Not only are EVs more expensive than their gas-powered counterparts, but they also tend to attract a premium buyer with an average credit score of 758. Lenders are eager to finance these loans since they typically present a lower risk with better overall performance. For dealers that can keep up with EV demand, buyers become extremely loyal to the experience. Very few switch back to combustion engines after owning electric.

Dealerships find that EVs create unique maintenance patterns – along with very different ownership experiences. While folks tend to love their EVs, we are also seeing that changing a simple lightbulb in a dashboard can cost our customers a thousand dollars, while some EV owners wait months just to get basic parts.

In many cases, dealers I work with have had to create whole new maintenance packages to service their EV customers. As my colleague noted in this post, because EVs seem like they are on track to last far longer than combustion engines, the verdict is still out on how owners will feel about EVs when it’s time to pony up $10k or more to swap out a battery ten years into owning the vehicle.

In the future, I think we all know that the dealership business is going to change substantially. What steps should we take right now to prepare for it? Here are the action items that I recommend to my friends in the industry:

Get eyes on your inventory.

  • When customers start their first or next car search, be there for them. Share your dealership’s inventory with local, engaged, and pre-approved credit union members.

Prioritize your customer relationships.

  • Now is the time to start training your staff to enhance customer service. Adding humanity to car buying helps customers feel confident and excited about their experience. Dealers can excel here when compared to their digital-only competition.

Offer better financing.

  • CUDL, the nation’s largest network of credit union lenders, combines great financing options, innovative technology, friendly service, and meaningful local partnerships. Provide competitive auto financing solutions with a single application.
Josh Amaton is the Vice President of Dealer Client Experience for CUDL where he leads the team responsible for the Client Experience of over 15,000 CUDL dealers nationwide. He has more than 25 years of combined experience in the credit union and retail automotive industries working for CUDL/CU Direct and previously Group 1 Automotive. During his career he has earned numerous sales, leadership, and management awards in both industries and in addition recently graduated from Southwest CUNA Management School in 2019.
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