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Inventory Trends

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Ups and downs on the road to more normal inventory levels How long have we been waiting for inventory levels to return to normal? At this point, the ongoing inventory crunch in both new and used cars is just part of the environment, but we know it’s not permanent: while we’re not seeing much concrete evidence of an easing of supply pressure, there are indications that it’s not too far off. That said, there are multiple factors that seem poised to  delay  a return to normal. In addition, “normal,” when we do get there, might not look the same as it used to. The days of a 60+ day supply being the standard might be behind us, as industry-wide changes like the rise of digital retail and build-to-order continue to evolve.  Here’s a look at some of the factors we’re seeing and what they will mean to dealers, with one small warning: they all change quickly, and the picture may have changed between writing and publication. What does the data say now? To answer a question like this, we first turn to the data. At CarGurus, we’re lucky to have a huge amount of real-time data on vehicle availability, pricing, and time to turn, which our Industry Analyst Kevin Roberts uses to publish the monthly  Vehicle Availability Index .  The VAI compares month-end inventory per dealer to a starting point of November 2019. The most recent index, for February 2020, showed new car availability barely down over January, but still down almost 70% YoY. Prices were just slightly up for the month and sit 25% higher than last February. The picture is better on the used side, with the index up 2% over January and up about 5% YoY. As with new vehicles, prices were barely up over January, but YoY used prices are up 39%. What was interesting on the used side was that we saw the first signs of declining prices throughout most of the month, which made sense given that used inventory was back to pre-pandemic levels. However, the decline didn’t hold as consumers continued to snap up vehicles across a wide range of prices and styles. What could lead to a continued rebound towards more normal inventory levels? Early in the year, there seemed to be more potential positive factors that would help get more vehicles back on dealer lots. Here’s some of what we’re watching that could help the rebound, in a rough order of most to least likely impact. By far the most impactful factor would be new vehicle production levels getting back to target. LMC Automotive’s forecast originally expected that in Q3, but a combination of circumstances has pushed it back to at least Q4. Keep in mind that pent-up demand will probably absorb the beginnings of increased production, so inventory won't instantly rebound as manufacturing ramps up.  The potential for more interest rate hikes in the US to counter inflation would reduce demand fairly quickly as loan rates go up, and lower demand would give dealers a chance to restock.  As businesses continue to develop return-to-office plans, commuters may start to get over fears of rideshare, carpooling, and public transport. That would also reduce demand, although it could take a long time to set in. Rental companies could also get back to more normal operations, focusing again on building their fleets with new cars and offloading highly in-demand late-model vehicles into the used car market. What could prolong the situation even further? Unfortunately, as we’ve gotten through Q1, it seems like those positives are starting to get outweighed by an accumulating pile of negative factors. Supply chain issues continue to be the biggest threat – and it’s not just about chips anymore. Industry analysts downgraded production forecasts in response to two big developments in Q1: Russia’s war on Ukraine disrupting supplies of both raw materials and automotive parts  A new round of COVID-based shutdowns in China shuttering critical factories Those two factors, combined with ongoing semiconductor shortages, have the potential to push out the return to normal inventory levels to the end of 2022 or longer. But they’re not the only threats: Ongoing economic improvement would be a good news/bad news situation for dealers: if a small bump in interest rates keeps inflation down and employment continues to expand, that’s great for the country as a whole – but it puts more pressure on inventory as consumers have more buying power and more need for vehicles.  Good old seasonality could also drive up demand. While tax season looked a little delayed this year, the typical refund/warm weather buying patterns are likely to bring more customers in looking for both new and used vehicles.  Other more general factors could improve consumer sentiment: if the Ukraine conflict comes to a reasonable resolution and COVID fears and restrictions remain low in the US, we could see more buyers out there competing for a limited inventory pool.  Gas prices could have an impact as well, but that’s more likely to shift demand to smaller or alternative powertrain vehicles than it is to reduce demand entirely. That could increase competition even further in the EV/hybrid market, but it’s also probably a short-lived impact.  Finally, and I can’t believe I have to say this, we’re also hoping no more container ships full of cars catch fire. It might not have had much real impact on the market, but the symbolism was just a bit too much.  So, what does it all mean? Over time, we know that consumer demand, OEM production, and dealer pricing will return to a more normal balance. It might not be the same as it was in 2019, but it won’t look like the craziness of the last two years. Overall, it seems like the return to normal is being delayed by the combination of new economic, supply chain, and political factors. We expect markets to head towards more typical levels late in the second half of 2022, but we’re going to keep an eye on those negative factors to see if that gets pushed out further. 
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Connected Car Helps Drive Automotive Retail Consolidation

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Automotive Retail is Consolidating It’s no secret that significant consolidation of automotive retail is underway. Every week, Automotive News reports additional acquisitions by the leading retail consolidators. Earlier this year, Automotive News reported that the consolidation trend has continued steadily over the past 10 years – even through the pandemic. At the end of 2020, the Top 150 Dealer Groups owned 21% of all dealership locations and represented 23% of industry sales volume. This is up from 13% of locations and 16% of volume ten years earlier.   The need for significant technology investments is one driver of consolidation. Smaller dealers are faced with large investments to enable digital retailing to meet customer expectations. Dealers are also facing new investments in electrification technology to accommodate the industry shift to EVs. And some dealers are choosing to sell rather than make the investments. For example, approximately 20% of Cadillac dealers are reported to be walking away from their franchises, rather than make required investments in selling and servicing Electric Vehicles.   Tesla’s Retail Approach Shows What is Possible Tesla’s retail network shows that technology can not only be a driver of consolidation, but also an enabler. Tesla has fewer than 200 Sales Galleries and fewer than 150 Service locations. Connected Car technology is one of the keys that makes it possible for Tesla to service its customers with so few facilities. On the sales side, Tesla enables comprehensive on-line shopping. In service, Tesla says that it can accurately diagnose 90% of all issues remotely and that it can repair 80% of problems without a visit to a service center. Connected Car technology makes this possible by allowing Tesla to remotely connect to its vehicles for diagnosis and for ongoing insights into real-world customer usage. Tesla can also determine the customer’s location if it needs to dispatch a remote repair and Tesla can often repair vehicles with an over-the-air software update. It is safe to say that Connected Car technology is the only way that Tesla could operate with so few physical locations. As this technology becomes more widely used by all OEM’s, there will be growing opportunities for other OEMs to consolidate sales and service facilities. Lessons from the Pandemic and the Chip Shortage Both the pandemic and the chip shortage have accelerated trends toward digital retailing and reduced inventories. As reported in Car and Driver , Ford has concluded that the pandemic accelerated customer interest in shopping and ordering vehicles on line. Many dealers successfully responded by offering at-home test drives and deliveries. A build-to-order mindset for consumers has been further accelerated by the chip shortage, which has made it difficult for dealers to hold inventory and for customers to shop from inventory on the dealer’s lot.   Connected Car Technology Will Enable Further Consolidation Connected Car technology will further enable the trends toward retail consolidation and digital retailing. As Tesla has demonstrated, a well-connected OEM and Dealer network can easily provide remote sales and service to customers without needing so much real estate. As customers become more comfortable with online ordering and remote service, the most successful dealers will be those who make the best use of technology to serve customer needs.   We will soon see dealers making extensive use of Connected Car tech in their sales and service operations. For example: In Sales, vehicles can be made available for any-time test drives and parked inaccessible locations. Vehicles can be electronically disabled to prevent theft and only enabled for prospects with a valid authorization code. Also in Sales, a limited test drive can be extended to a short- or longer-term rental, with data collected to make effective suggestions to the customer for a customized vehicle, accessories, and software. In-Service, ongoing monitoring of vehicles will create increasingly sophisticated predictive models. These will allow Dealers to contact customers long before a failure occurs and offer either a physical repair or a software update. Also in Service, Dealers can monitor vehicle diagnostics trends, and can proactively schedule vehicle maintenance to be done at a time that is most convenient for the customer and also the most efficient for the dealer. The bottom-line result will be continued consolidation and more efficient use of real estate to meet the needs of automotive shoppers and owners. 
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What Dealers Want From Their OEM Programs

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Automotive manufacturers create programs for their dealers to improve operations, drive up sales, and increase customer loyalty. But how successful are these programs in actually driving results for the dealers? RevolutionParts conducted a survey asking hundreds of dealers how effective they thought their OEM programs were and what areas they felt needed the most improvement. As a whole, dealers who adopted their OEM programs generally liked them, which is great news for manufacturers. This means their dealers see value in adopting and running these programs. Currently, OEM programs permeate the entire dealership, but more so in the parts department than anywhere else. In fact, a whopping 84% of dealers use OEM programs in their parts department. The three most significant considerations dealers take into account when deciding whether to adopt an OEM program are:  The overall cost of the program Overall sales impact and life directly from the program The success of other dealerships using this program Although dealers were generally satisfied with their OEM programs, they also reported that they wanted these programs to provide more resources and incentives to help drive their sales more effectively. More than half of them also felt like the program was designed to be more beneficial for the manufacturer than for their dealership. Areas of Improvement for Manufacturers One of the biggest concerns among dealers was program communication. Up to 50% of dealers reported that manufacturers needed to improve communication around their programs to help and provide more employee training and support. Nearly 45% of dealers said that manufacturers needed to expand OEM programs to better reflect current and future business models.  When asked what manufacturers needed to work on, dealers said they wanted:   Easier to use programs (especially for online sales) Higher-quality training for employees Better customer service support Consistent inventory tracking Offer higher-value incentives for dealers to drive sales Improvements made to each of these areas will help dealers improve their eCommerce sales, help them engage with their customers more positively, increase customer retention, and build customer loyalty.  Dealers Want More eCommerce Support Today, most dealers understand that the way people do business is changing, as more people are going online to shop for cars, parts, and accessories, and to schedule service appointments. Dealers today are looking for eCommerce solutions to help them expand their business online and reach their overall goals, an area most dealers feel their programs are lacking.  While most dealers are willing to adopt their OEM programs to support their eCommerce goals, dealers felt that these programs could use some upgrades. This is a big opportunity for manufacturers to change along with their dealerships to offer better eCommerce solutions.  Get the Full OEM Program Satisfaction Survey Results The RevolutionParts OEM Program Satisfaction Survey gives insight into the needs of dealerships across multiple areas of OEM programs, overall OEM program satisfaction, and what OEMs can offer their dealers to help drive their business growth goals. View the full report here .
Lockdown Spurs Growth of Streaming Video, Driving More Opportunity for Local Dealers

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The COVID-19 pandemic has changed many aspects of our lives, including the way we work, learn, shop and communicate. In regards to consumer video consumption, the pandemic hasn't so much changed the paradigm as it has advanced significant trends already in motion, mainly the impacts of cord cutting and streaming on the growth of digital video and the continued audience erosion of traditional TV.  BIA Advisory Services (a recognized media industry consultancy) labeled OTT and connected TV as "game changers" citing "advancements in ease and ability to purchase fragmented inventory and more advanced audience targeting" in releasing its forecast for U.S. local advertising in 2021. According to BIA's Rick Ducey " (the) local viewership shares gained in Q2 and Q3 of 2020 (are expected to) be maintained and expanded" According to eMarketer research , connected TV (CTV) audiences have now surpassed those of cable TV. Simply put, the audience growth that has occurred as a result of the lockdowns is here to stay.  OTT's growth, along with advances in data integration, provides new opportunities for dealerships to use more personalized TV advertising to deliver targeted video ads. Advertisers are now able to layer in-market data from first-party and third-party vendors to target in -market buyers based on make/model or class of vehicle. It is now possible to deliver, on a local level, specific unique commercial messages by household or even individual viewer. This means that different creative messages can be delivered to different people viewing the same content at the same time based on a number of household demographics or characteristics.  There are also continued advances in attribution. By adding a tracking pixel to their website, advertisers can more easily track and manage the performance of their OTT campaign(s) to ensure they are driving traffic that converts to actual vehicle sales.  How does OTT compare to television, YouTube or social video platforms? In comparing OTT and programmatic advertising to index-based broadcast or cable TV; comparing the cost per thousand (CPM's) of impressions each media delivers has been the traditional approach. Other factors typically considered in this type of analysis are factors such as age, sex, geography, rating survey area, live versus delayed viewing. Here you might see comparable CPM's for a linear or traditional TV buy when compared to OTT. However, this level of analysis fails to account for the targeting advantages OTT delivers in the ability to target in-market shoppers. Assuming that 11.51% (14.8 MM SAAR projected for 2020) of U.S. households plan a new vehicle purchase within a year, and assuming a three-month purchase cycle, counting only those "in-market shoppers" would result in an adjusted broadcast/ cable CPM easily in the $500+ range vs. a $30-40 CPM for OTT. While this analysis assumes that 100% of the OTT campaign is in fact targeted to in-market shoppers, the magnitude of a 10-fold difference in effective reach vs. cost builds a strong case in favor of the OTT model. OTT advertising also offers some key advantages compared to other digital platforms such as YouTube and Facebook. While both YouTube and Facebook offer the target ability of in-market shoppers, the granularity available in the attribution of OTT campaigns is currently not easily duplicated in either of those media. Another advantage unique to the OTT platform is the high completion or view thru rate of the video campaigns which often exceed 95%. This means that OTT video messaging has a high completion rate. Compare this to YouTube with a view completion rate in the 31% range ( bigcommerce.com ) or Facebook, where the scrolling nature of the format also translates into a low completed view-thru on the video ads. In Conclusion The pandemic has accelerated consumption of on-demand content while, at the same time, the capabilities of OTT advertising continue to evolve. While this will eventually be a crowded field, similar to local search advertising, right now there exists a unique opportunity for savvy automotive retailers to use video to position their dealerships with greater local competitive dominance and drive tangible and measurable incremental store sales.
How COVID Is Reshaping Car Shopping and What It Means for Your Dealership

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When Covid came crashing onto the scene at the start of 2020, it brought disruption across almost every industry, including automotive. Dealerships were forced to close their doors to in-person visits, OEM plants shut down, auctions moved online, and consumers stayed home.  Nine months later, dealers have shown incredible resilience and flexibility in adapting their marketing and retailing tactics for success. The  most recent update  of our ongoing CarGurus COVID-19 Sentiment Study shows dealers aren't the only ones acclimating during this challenging time, though. Here, we break down our latest consumer sentiment data — and what it means for dealers. Car sales are lagging, not lost While the pandemic's reality has caused some to delay their vehicle purchases, 71% of people who plan to purchase by the end of 2021 are already actively researching vehicles online, according to CarGurus' November study. Of those who bought during the pandemic, half said they purchased when planned because they had an immediate need for a vehicle. For other purchasers, necessity wasn't the issue: 27% said they were motivated to buy because they wanted a vehicle for personal travel, leisure, hobbies, or projects. Vehicles offer a sense of escape and fun during this challenging time, which may be one reason why 30% of those who bought in 2020  weren't  planning to do so before the pandemic. For dealers, it's important to remember that consumers' need and desire for vehicles aren't likely to go away any time soon.  Limited vehicle selection is driving consumers to be more open Shoppers had felt the pandemic's impact on both selection and price, though the impact varies depending on when they bought. Those who purchased a vehicle during the early months of the pandemic — March through June, when dealers were trying to offload vehicles — were nearly 2x more likely to say prices were much lower than normal, compared to those who bought from July through November (31% vs. 16%) when many dealers are experiencing a shortage of quality inventory.  Like consumers, dealers have also started to feel an inventory crunch in recent months. The good news for dealers is that shoppers are staying more open-minded about what vehicles to consider: 62% are considering more than one brand, and 42% are considering more than one type of vehicle. This leaves room for dealers to sway shoppers toward their available vehicles. Still, dealers will have to get creative and use tools and data to ensure their lots are stocked with in-demand vehicles that will sell.  Demand for financing continues to grow Affordability remains a concern, with 44% of shoppers saying they're less confident in their ability to afford a vehicle due to the pandemic (down slightly from 48% in June). Consequently, demand for financing has grown. Before the pandemic, 48% of shoppers were planning to finance — now, 62% plan to (or did).  With affordability a concern, now isn't the time to pressure shoppers into a purchase decision. Instead, dealers should nurture shoppers down the funnel, keeping them engaged and answering their questions as they get closer to a decision.  Since 52% of shoppers would prefer online financing, letting buyers get pre-qualified online and then prioritizing those leads is another way dealers can get ahead. For example, CarGurus shoppers can submit a lead on a dealer's VDP and get pre-approved for financing by at least one of the lenders a dealer works with. All that's left for a dealer to do is customize and finalize the financing. This makes for both a happy customer and dealer, with less time wasted on the in-person deal.  Interest in digital retail remains steady November's study found 88% say it'll be quite a while, if ever, before shopping habits return to normal. As a result, more car shoppers than ever are open to — and even prefer — buying online. Only 35% of shoppers were open to buying online before the pandemic. Today, 60% are, and that number hasn't waned since June (60%) or April (61%) — despite dealership re-openings.  With consumers' preferences changing and digital retailing strategies advancing, savvy dealers should look to tactics like online price negotiation, trade-in valuation, and financing, as well as home delivery to win today's shoppers. The current health crisis has accelerated digital retailing trends that were already on the horizon — and they're likely here to stay now. There's reason for dealers to be optimistic, despite the pandemic The Covid pandemic has reshaped many parts of American life, including how people research and buy cars. Still, bright spots remain for dealers who keep up with their digital marketing efforts and promote their online and contactless services. By continuing to market to consumers, dealers will stay top of mind, consequently leading consumers to turn to their dealership when they return to the market — and they  will  return. Read the full study here .
Survey Reveals Car Repair Trends During the Pandemic

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COVID-19 has disrupted how consumers interact with businesses in several industries, and auto dealerships are no exception. The industry has had to adapt to how customers get repairs and shop for cars. With economic uncertainty looming, car owners are opting to make repairs to current vehicles now more than ever, both to keep it running for longer as well as increase the trade in value. Though fewer people are heading into work or school during the pandemic, cars are still being driven because people are avoiding public and mass transportation in favor of road vehicles.  Bottom line: People still need reliable transportation during a major public health emergency. How they prioritize their auto-related purchases — new or used vehicles, repairs, maintenance, accessories — continues to evolve. Similarly, dealerships need to evolve to be strategic and agile in communicating with their customers because of nerves associated with their health.  To get a better picture of consumer habits around vehicle repairs,  DigniFi recently surveyed  401 dealerships and auto repair shops across the country. The survey revealed some insights that can give auto marketers a new perspective on customers. Highlights include: 57.6% of dealerships and repair shops say customers are deferring car maintenance because of the pandemic  60.8% of dealerships report more customers need financing due to COVID-19 Dealerships and auto repair shops indicate a 62.3% increase in car maintenance in areas where shelter-in-place has been lifted Auto repair shops and dealerships shared some specific insights about customer behavior during the pandemic. The survey isolated five particular trends, which include: Financial hardship is big on people's minds  — "A lot of customers are holding off doing repairs or maintenance due to being furloughed." There are fewer collisions because there are fewer people on the road  – "I deal with collision. Fewer vehicles on the roads mean fewer accidents. Also, with fewer tourists, fewer rental cars to repair. Business has dropped noticeably." Customers need to know that a shop has clear safety protocols  – "Customers are much more concerned about COVID-19 cleaning processes and PPE while at the shop." People aren't using their cars as much, which leads to maintenance issues  – "We've noticed more minor repairs, probably from cars just sitting and more issues like battery failure due to vehicles not being driven as much." Consumers are reassessing when to get repairs  — "Routine maintenance is up. However, they appear to be putting off the larger repairs, even tires." Health officials have been warning of a possible surge in COVID-19 cases this winter, with local authorities loosening restrictions under public and political pressure to return to normal as the holidays approach. With more people gathering indoors, experts anticipate a spike in cases. All of this might lead to local or even statewide lockdowns designed to curb the number of cases that might overwhelm hospitals. If that happens, dealerships and auto repair shops will have to be agile enough to work with customers on their own terms, providing safe experiences, reliable services, and multiple financing options. Repair shops are going to continue to have a steady stream of business, and operators should be prepared for customers' current financial challenges.