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 how consumers are researching and buying vehicles that’s evolving – they’re increasingly opting for remote and digital purchasing options. What consumers are shopping for is also changing, fueled by factors including changes to consumer finances, government regulations and shifting product mixes from OEMs.
To navigate today’s changing automotive retail landscape and adapt to changing car buying behaviors, proactive dealers are turning to data to look ahead and plan their next steps to understand what influences car buying decisions.
In this blog post, we identify three current market trends affecting car buying behavior in 2021 that are critical for dealers to consider while planning ahead, including:
- Increased demand for mid-size vehicles
- Growing interest in EVs
- Benefits of captive loan penetration
Increased Demand for Mid-size Vehicle Models
While sedan sales in the U.S. have been slowing for a number of years, American’s 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.
This consumer car buying trend is even more evident in the luxury space, where SUVs represent 64% of the total segment according to earlier research from IHS Markit. Combined with sedans, with a share of 27%, these two styles account for 91% of all new luxury vehicle deliveries.
With consumer demand high and new vehicle inventories still strained, 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.
New Interest in EVs
Like SUVs, growing consumer interest in electric vehicles spurred by seemingly endless factors has been well documented in recent years. However, IHS Markit reported consumer adoption reaching new heights in 2020 as EV loyalty climbed to 55%, increasing from only 34% five years ago.
This growth is expected to continue, with U.S. sales of EVs expected to exceed a 3.5% overall market share in 2021 and climb to a more than 10% share in 2025, according to IHS Markit. On a global scale, IHS Markit forecasts EV sales to grow by 70% in 2021.
From sales to service work, dealerships will be critical to electrification on a mass scale, explains NADA President and CEO Mike Stanton. “There’s 17,000 franchised dealers waiting to sell electric vehicles, excited to sell electric vehicles,” says Stanton in a recent 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.”
Greater Captive Loan Penetration Offers New Opportunities
As the industry continues to recover, many OEMs and dealers remain focused on maintaining customer loyalty as buyers return to market. Loyalty is playing a larger role at the brand-level, explains IHS Markit. And despite the pandemic, loyalty rates remained relatively high in 2020.
This may have been, in part, driven by attractive OEM incentives, namely low and no-interest loans with extended terms and payment deferrals offered by many automakers at the peak of the pandemic. 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 in 2020, these buyers represent numerous opportunities for brands and dealers alike. By facilitating leases, 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 continuous sales opportunities, as well as a sustainable source of CPO vehicles from those coming off-lease.
As many of these OEM programs have faded away, it’s now up to dealers to ensure they can identify and engage customers who are preparing to return to market with attractive financing offers tailored to their unique purchasing situation. 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 soon, 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 brand loyalty, exchanging bait-and-switch deals for personalized and transparent offers including any available OEM CPO programs, automotive financing terms or other special offers.
If 2020 taught us anything, it’s that while we certainly can’t predict the future, planning for your dealership’s success in the future requires you to look at the past. By understanding the car buying trends shaping customer buying behaviors in 2021 and beyond, dealers are empowered to identify areas of opportunity in their market – even in the uncharted territory ahead.
Interested in exploring how Market EyeQ can help your dealership embrace new opportunities in 2021? Contact us for a free demo.