3 Emerging Opportunities for Auto Dealers Amid Chip Shortages

May 21, 2021 John Kehm

Amid countless external factors driving ongoing automotive chip shortages, which the shortages forecasted to impact new vehicle supply into 2022, dealers are forced to adapt to evolving inventory challenges to secure both their immediate and future success. 

Fortunately, despite these external factors, there are numerous inventory opportunities well within auto dealers’ grasps – if they know where to look. 

In this blog post, we’ll outline 3 emerging opportunities for auto dealers amid chip shortages including: 

  • Historic demand for new vehicles
  • High pre-owned vehicle prices
  • Better overall margins

High Customer Demand For New Vehicles

As chip shortages drive down new vehicle inventories, the U.S. economy is entering a state of recovery, with customers returning to market and ready to buy. According to IHS Markit, U.S. new retail light vehicle registrations reached a 10-year high of 1.64 million in March 2021.    

This increase in demand has been further intensified by mounting concerns over vehicle availability, ultimately driving high new vehicle prices even higher. According to industry reports, new vehicle prices in April 2021 increased by 2.2% year-over-year, or $864, bringing the estimated average transaction price to more than $40,000. For dealers facing tight new vehicle inventories or otherwise unable to stock in-demand or desirable units, capitalizing on customer demand requires a strategic approach. 

For example, if you can stock some new vehicles, but not necessarily popular units, you may need to be more aggressive with trade-in values or pricing on less desirable models. Look for inventory opportunities to upgrade previous pre-owned buyers into new models, starting with customers driving in-demand pre-owned models. By acquiring these in-demand trades for a future pre-owned sale, dealers are better positioned to price their new vehicle inventory to sell. 

Higher Pre-Owned Prices

Chip shortages haven’t solely impacted new vehicle prices. Scarce new vehicle availability has prompted some previous new buyers to consider pre-owned options, pushing already high pre-owned prices even higher. 

Auction prices have followed suit. By mid-May, a 4.5% month-over-month increase of wholesale used vehicle prices translated to a 48% year-over-year increase in used vehicle values according to Manheim. This pre-owned inventory trend has spurred some dealers to hold and merchandise older trade-ins instead of sending them to auction, as well as to take a proactive approach to acquiring in-demand trades. 

For many dealers, the service drive serves as a critical role in the dealership inventory acquisition process, serving as a sustainable source of potential pre-owned acquisitions driven by customers you already know. Leveraging dealership marketing tools that integrate with a dealership’s CRM, DMS and service data, some dealers are taking a proactive approach to mining their upcoming service appointments for profitable pre-owned vehicle acquisitions. 

When identifying prospective trade opportunities, look for key indicators such as customers who are out of warranty, over their lease mileage or could benefit from a new product design or a payment decrease to engage prospects before they re-enter the market – and start shopping around. 

Higher Profit Margins

Despite both new and pre-owned vehicle prices climbing, equally high customer demand means fewer shoppers haggling inside the showroom. A recent industry study found 40% of buyers would be willing to pay up to $5,000 above sticker price for a new vehicle. 

For dealers who can meet these customer demands, profitability is soaring. Of course, the first step to engaging these buyers is ensuring you have the vehicle on-hand they’re interested in. Instead of struggling to find the right match for a customer on the lot, proactive dealers are taking the opposite approach, mapping their available inventory to prospective buyers predicted to be interested in them. 

This not only empowers dealers to maximize their available inventory, quicken their turn and maximize their ROI through hypertargeting marketing efforts. Dealers who have taken a similar approach using Market EyeQ report a cost-per-sale of $115 on average – significantly lower than the industry average of $624. 

While 2021 chip shortages have challenged dealers to adapt to ongoing changes driven by forces outside of their control, numerous opportunities are still available – and well within a dealer’s grasp. But to turn these inventory challenges into opportunities, dealers need to stay a step ahead, starting with taking a data-driven approach
 

Interested in exploring how Market EyeQ can help your dealership adapt to the 2021 chip shortage? Contact us

 

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