Q3 State of Automotive Industry Sales & Inventory

August 1, 2022 automotiveMastermind

Despite market disruptions, auto dealers started off strong in 2022. In Q1, auto dealers generated the strongest new car sales since Q2 2021, according to NADA reports. However, in Q2, dealers continued to face new and emerging challenges with car sales, including ongoing inventory shortages that are likely to continue on through at least the end of the year. 

In this blog post, we’ll explore the state of auto sales and inventory in Q2, what is forecasted ahead for car dealership industry trends and what it all means for auto dealers including:

·  The state of ongoing inventory challenges

·  Dwindling OEM incentives and rising transaction costs

·  Consumers’ confidence returning to market

Inventory Shortages Continue On

Progressively decreasing sales in Q1 continued through May 2022. Despite June increasing slightly over May, June’s sales brought the Q2 SAAR to a total of 13.4 million units, decreasing from 14.1 million in Q1, according to NADA reports.  

Inventory shortages and ongoing supply chain  delays continue to be the largest limiting factors for dealers. According to Wards Intelligence, inventory at the start of June 2022 was down 25% YoY (year-over-year) and was less than a third of the pre-pandemic level. These inventory shortages experienced by car manufacturers are likely to linger on, at least through the end of 2022, with S&P Global Mobility projecting little changes to its North American new vehicle production forecasts in either June or July.

What This Means for Dealers

With market stabilization unlikely in the near future as inventory shortages are projected to last through 2022, it’s important for dealers to take a proactive approach to retail sales by engaging with their customers before the time of purchase. This allows dealers Tto stay well ahead of issues caused by inventory delays , as well as stay aligned with customer’s needs.

Focus on leveraging dealership marketing technology integrated with your dealership’s CRM and DMS. Also, work with prospective buyers, such as those who are approaching the end of their lease, finance term, or warranty. This will allow you to create a personalized return-to-market plan that helps them get into the vehicle they desire.

Costs Increase as OEM Incentives Dwindle

OEM incentive spending has progressively dwindled as a result of ongoing inventory shortages. According to J.D. Power, incentive spending per unit in June totaled just $903, down 59.4% YoY. With OEMs still prioritizing the production of higher-trimmed, more expensive vehicles due to consumer demand, and further reducing incentives across the board, the average transaction price was expected to set an all-time record in June, according to NADA reports.

Coming off historic highs at the end of 2021, pre-owned vehicle prices steadily declined through the first half of the year, according to the Manheim Used Vehicle index. These losses began to plateau through the end of Q2, with July’s Manheim Used Vehicle Value Index rising to 221.5, up 13.4% from July 2021.

The June Manheim Market Report (MMR) from the Manheim Index also saw larger declines over the last two weeks than earlier segments in car sales trends, indicating a rocky finish to Q2 for dealers. Market prices also lagged behind expected value while the average daily sales rate declined to 51.7%. This is a typical seasonal pattern, but was at a level below normal for the time of year according to the report.

Simultaneously, consistent demand for pre-owned vehicles has  helped keep prices for buyers’ trade-ins high all year, even while they fluctuate. J.D. Power reported June’s expected average trade-in equity will reach a record-high of $10,381, a 49.2% YoY increase  – and the first time recorded average trade-in equity has topped $10,000.

What This Means for Dealers

As demand for pre-owned vehicles and auction prices both remain high, dealers need to adopt a “homegrown” sales and acquisition strategy.

Vehicles in a dealership’s homegrown inventory are vehicles initially sold or leased as new, and are later traded back into the same dealership to be reconditioned and sold again as a pre-owned sale. This strategy represents the pinnacle of pre-owned profitability – and is particularly valuable amid ongoing inventory challenges as it empowers dealers to acquire in-demand pre-owned vehicles.

To maximize profitability at every step of the process requires dealership-wide buy-in. To keep every department (including arming sales, service and F&I) on the same page throughout this entire journey, ensure each team is equipped with the same customer insights. Tools like Mastermind which integrate a dealers CRM and DMS can help largely automate this process, from the first new vehicle sale to identifying and engaging the best pre-owned prospect for that vehicle later on. 


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Consumer Power Reaches All-Time High

As ongoing shortages have lingered on, raising prices and limiting buyer’s options, consumer confidence has taken a hit. In fact, the University of Michigan’s consumer confidence index declined a record low of 14.4% in June. In the first two weeks of July, consumers’ views of buying conditions for vehicles increased to the best level since April; however, this improvement was from consumers’ view of current conditions as future expectations declined slightly, reports Manheim.

At the same time, the United States Federal Reserve is continuing to raise interest rates in an effort to rein in inflation. So far this year, the Fed has increased the federal funds rate 3 times, to a target range of 1.5%-1.75%. With more rate increases expected throughout the remainder of 2022, NADA predicts that the average interest rates for new and used vehicle finance contracts should be at or above their pre-pandemic levels before the end of the summer.

What This Means for Dealers

Despite rising costs and rates, consumer demand and sentiment has remained relatively high throughout 2022. To capitalize on future sales opportunities and build goodwill with customers, dealers need to prioritize creating a customer-first buying experience. Delivering an exceptional dealership customer experience is especially important when prices are high, especially since customers prioritize trust as much as purchasing price when deciding which dealership to purchase from.

To help offset any sticker shock and build customer trust, dealers need to identify opportunities to provide customers a whiteglove experience. Aim to build value into every step of the sales process, starting with proactive, personalized outreach that supports a tailored sales or service experience and long-term customer loyalty. Now is the time to assess how well you know your audience and their buying preferences to personalize your approach, such as offering digital retailing solutions and other convenient purchasing options such as pre-orders and reserved sales.

Finally, ensure your dealership’s messaging is consistent across every channel – online and in-person. Your team should be equipped to speak confidently through any of this messaging, paying extra attention to topics such as availability, incentives and incoming orders.

Conclusion

If there’s anything every dealership is feeling currently, it’s the lack of new inventory across both the industry and country. As market disruptions and inventory shortages challenge the automotive retail industry, dealers are finding new opportunities to stay ahead. While auto dealers and vehicle manufacturers have proven to be incredibly resilient, it’s critical to maintain this momentum heading into the second half of the year, especially as some uncertainty remains. Looking at Q3 and beyond, the dealers who continue to adapt and evolve will be in the best position to embrace future opportunity – regardless of what lies ahead.

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