Following lingering challenges from the COVID-19 pandemic and growing inventory concerns spurred by the microchip shortage in early 2021, dealers’ performance in Q2 varied greatly from brand to brand, coast to coast and store to store.
While an evolving mix of external factors presents dealership challenges that are unique to every rooftop, it’s critical dealers think ahead to secure sustainable future success.
Heading into the second half of the year, there is plenty of opportunity for proactive dealers who keep their finger on the ]state of the auto industry to stay a step ahead of emerging trends – and customers.
In this blog post, we’ll recap the highlights from the last quarter and what it means to dealerships, including:
State of the 2021 Chip Shortage
Undoubtedly top of mind for the entire industry in 2021 has been the semiconductor chip shortage. This year has seen numerous supply chain disruptions, causing concerns from OEMs down to dealers and buyers alike.
From an automotive production standpoint, 2021 has been incredibly challenging. Entering Q1, strong consumer demand for vehicles created an imbalance in the semiconductor supply chain. This imbalance ultimately resulted in an estimated 1.4 million light vehicles not being built globally in the first quarter, according to IHS Markit.
Other shocks to the automotive supply chain compounded in Q1 and added more disruption in Q2, including historic storms in Texas, the Fukushima earthquake in Japan and the fire at Renesas Naka 3 facility.
As lots grew emptier, news reports surrounding the inventory shortage mounted, resulting in a buying audience uniquely aware of the shortages, which challenged dealers to proactively adapt to and address inventory shortages with customers. According to one industry survey, 76% of in-market vehicle buyers were aware of the ongoing chip shortage, 83% of which were aware of its impact on the new vehicle market.
Looking ahead, there is some light on the horizon. According to IHS Markit, global light vehicle production increased by an estimated 15% in the first quarter of 2021, and global light vehicle production is forecasted to increase by 50% against a weak comparison in 2020.
However, this doesn’t necessarily mean there will be new cars on your lot tomorrow. While IHS Markit expects production to improve this quarter, Q4 is forecasted to be the first opportunity for supply to keep up with demand with real recovery efforts starting in 2022. In the meantime, it’s critical that all dealers, regardless of their days’ supply, adjust the way they do business to engage and retain their audience.
Q2 Sales Automotive Report
Many dealers entered Q2 on a high note following strong sales in the months before. According to IHS Markit, U.S. new light vehicle registrations reached a 10-year high in March 2021 at 1.64 million units.
But even amid high consumer demand, it’s critical dealers communicate with their audience to engage and retain buyers. While make, manufacturer and dealer loyalty rates typically follow the same trajectory, IHS Markit data shows these similarities are on the decline. While manufacturer and brand loyalty slipped just .2% from 2018 to 2021, dealer loyalty dropped 1.6%.
This is especially important to note as summer auto sales appear to be cooling heading into Q3. According to one analyst, the seasonally adjusted annualized rate for new vehicle sales dipped by 15.7 million units in June, following similar declines in April and May with 18.6 million and 17.1 million units recorded respectively.
Amid diminished loyalty, cooling sales and strained inventories, dealers must take a data-driven approach to engaging prospective buyers. This includes both identifying and engaging buyers earlier in their buying journey – or inspiring prospects to re-enter the buying journey – and mapping buyers to your available and in-bound inventory according to their predicted needs.
Q3 Auto Industry Outlook
While relief is on the horizon, IHS Markit currently estimates it will take until the first quarter of 2022 for capacity to keep up with demand and to begin filling back orders. However as recent history has shown, countless evolving factors make industry-wide recovery hard to predict.
One thing is certain: The way of doing business has changed dramatically in the last year. In a six month study by Roadster that ended in March, a reported 86% of vehicle buyers had some portion of the transaction take place online, increasing by 20% over the previous period.
As buyers spend more time online they also become more apt to purchase online. Proactive brick-and-mortar dealers are taking cues from their online-only counterparts by embracing an omnichannel approach. This means meeting audiences where they are in their buying journey with personalized touchpoints that follow customers across channels.
In Q3, amid increased competition for fewer buyers and inventory shortages pushing some shoppers to opt for online-only retailers, it’s critical dealers assess the way they are communicating with their audience and identify ways to improve the dealership customer experience.
Consider developing brand-focused messaging that keeps customers informed and answers any “what,” “when” and “why” questions they have. Further, look for opportunities to improve training for BDCs and sales team members on important topics and relevant information like if your dealership is selling inbound units or allowing your customers to place specific orders while they wait.
While for many brands and dealers the second quarter of 2021 presented numerous and evolving challenges, new opportunities also emerged. Looking ahead to Q3 and beyond, the dealers best equipped to succeed are the ones who learn from the past to predict what’s likely going to happen next.