As disruptions ranging from rapid digitalization to widespread inventory shortages shake the automotive industry, success for auto dealers continues to be defined by how well teams can adapt and embrace change.
It’s not just buyers’ expectations and purchasing habits that are changing, as customers increasingly opt for digital retailing options and online-only retailers like Carvana and Vroom. What consumers are shopping for is also changing, fueled by factors including inventory availability, affordability, government regulations, shifting product mixes from OEMs and beyond.
With so many factors not only influencing dealerships’ ability to sell new cars but also to market them, it’s critical dealers look to data to navigate today’s changing automotive retail landscape and customer buying behaviors.
In this blog post, we identify three current market trends affecting car buying behavior throughout 2021 that are critical for dealers to consider while planning ahead, including:
- Growing demand for SUVs coincides with a reduction in sedan sales and diminished brand loyalty
- EV and hybrid vehicle demand continues to grow
- Capturing captive loan customers returning to market
Sedan Sales Slow Amid Increased Demand for SUVs
While sedan sales in the U.S. have been slowing for a number of years, Americans’ shift to mid-size vehicles reached a new milestone in 2021. For the first time in recent years, mid-size vehicles captured more share of registrations in January than compact vehicles, according to research from IHS Markit.
This movement away from sedans and compact vehicles is in part fueled by an ongoing shift in consumer preferences toward sport utility vehicles. In the same report, IHS Markit noted that in January 2021, mid-size utility vehicles were 60% of mid-size vehicle registrations, up from 56% a year earlier.
Sedan sales continued to take a hit in Q2. According to IHS Markit analysts, sedans’ market share dropped to just 19.2% in July, the lowest for the segment since 1987. At the same time, the retail SUV market share climbed to 56% in the second quarter of 2021. This consumer car-buying trend is even more evident in the luxury space, where SUVs grew to represent almost 70% of the total segment by the end of Q2, according to IHS Markit.
High SUV Demand, Reduced Inventory Shortage Means Reduced Loyalty
Influenced by inventory shortages, changing body style loyalty trends took a backseat to the much bigger story in Q2: brand loyalty. As customers increasingly struggle to find preferred body style, brand loyalty among U.S. consumers for new vehicles dropped to a six-year low in June.
With customers increasingly willing to switch dealerships or even brands to buy the vehicle they want, it’s critical dealers take a data-driven approach to inventory management. By leveraging predictive marketing technology, dealers can identify localized car buying trends and areas of demand to both turn their new inventory faster and acquire in-demand pre-owned models in the process. This includes identifying which makes and models have consistently sold well in the past, as well as which customers in your portfolio are most likely interested in the vehicles you currently have on your lot.
The Industry Shift to Electric Vehicles and Hybrids Continues
Along with the movement away from sedans and compacts, there is consistent and growing interest in a wide range of electric vehicles (EVs) spurred by just as many factors that have been well documented over recent years. However, IHS Markit reported consumer adoption reaching new heights in 2020 as EV loyalty rates climbed to 55%, increasing all the way from only 34% five years ago.
This kind of wild growth is expected to continue in the short and long term. U.S. sales of electric and hybrid vehicles were originally expected to exceed a 3.5% overall market share in 2021 and climb to a more than 10% share by 2025 according to IHS Markit, who forecasted EV sales to grow globally by 70% through the end of 2021.
As the industry moves towards electrification, many OEMs are looking to hybrids to help bridge the gap and increase consumer adoption. While EVs continue to be more expensive than their internal combustion engine (ICE) counterparts, monthly payments for hybrid models are only 6% higher on average, according to new research from IHS Markit and TransUnion.
With many consumers finding the transition to hybrids from traditional fuel vehicles easier, IHS Markit reports hybrid volume has nearly doubled since 2014, reaching 6% industry share in 2021 – the highest in the last decade.
From sales to service work, dealerships will be critical to electrification on a mass scale, explains NADA President and CEO Mike Stanton. “There are 17,000 franchised dealers waiting to sell electric vehicles, excited to sell electric vehicles,” says Stanton in a video dispelling the myths surrounding dealerships and EV sales.
In an earlier blog post, Stanton notes dealers’ attitudes toward selling and servicing EVs has changed considerably in recent years, using Cadillac as a real-world example of dealerships embracing change. Dealerships will be critical to widespread electrification, explains Stanton, offering “a large, expansive network of retailers and service providers who are experts at marketing locally, and who are invested in the future sales and service opportunities that these products promise.”
Captive Loans Offer New Opportunities
As evolving consumer preferences and inventory challenges push car buyers to shop around, many OEMs and dealers remain focused on maintaining customer loyalty as buyers continue to return to market.
Driven by attractive OEM incentives, namely low and no-interest loans with extended terms and payment deferrals offered by many automakers early in the pandemic, loyalty rates remained relatively high in the beginning of 2021.
As a direct result of these incentives, new vehicle purchases via captive loans spiked. While the captive share of financed new vehicle registrations has continually increased over the past few years, captive loans represented 51% of new vehicle registrations that were financed in 2020 according to IHS Markit, with captive loans facilitating about 90% of leases.
These buyers represent numerous opportunities for brands and dealers alike. Captive customers will naturally return to market faster, with lease terms about half of that of an auto loan. Further, IHS Markit research finds lessees are typically more loyal to brands when they do return to market, providing dealers both the opportunity to proactively prevent customer defection, as well as a sustainable source of CPO vehicles from those coming off-lease as COVID-19-driven extensions begin to expire.
The Final Word
With inventory shortages combined with aggressive buy-back offers from competitors and online-only retailers threatening customer loyalty, dealers need to ensure they can accurately identify and engage customers who are preparing to return to market. This will allow dealers to proactively protect their customer base. This starts with your very first customer touchpoint, underscoring the importance of data-driven dealership marketing technology. Ensure your sales and marketing teams can identify which customers in your database will likely return to market before others, as well as detail any financial considerations that may dictate their purchase.
Your marketing messaging should speak to these pain points and build on that customer’s previous loyalty.
- Personalize your outreach based on each customer’s unique wants and needs.
- Avoid any “bait-and-switch” offers.
- Include actionable messaging offers that account for your dealership’s available inventory, as well as any pre-selling options.
If the past 24-months have taught us anything, it’s that we certainly can’t predict the future – let alone the future of the automotive retail industry. Planning for your dealership’s success in the future requires you to look at your past. By understanding the trends shaping customer buying behaviors, dealers are empowered to identify areas of opportunity in their market – even in the uncharted territory ahead.