Why The Car Biz is Starting to Look Like 2008

Welcome back to another edition of the Car Dealership Guy Market Update!

Today’s guests are Jessica Caldwell, Head of Insights at Edmunds, and Zac Kinch, General Manager of Bob Rohrman Toyota.

In this episode, Jessica provides insights based on Edmunds data on what consumers are experiencing in the dealership, and Zac shares his team’s approach to handling the fluctuating new and used markets. Stick around to the end to hear the results of a survey examining the platforms that are impacting buyer decisions.

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(2:30) - Why is a GM at a Toyota dealership getting into the content game?

(7:35) - Market updates & and dealership reports

(23:01) - Toyota’s day's supply incentives

(24:25) - Car buyers are coming back to the market

(29:05) - The state of hybrid market share

(34:32) - What are you seeing in the used EV market?

(37:52) - Do you see a staunch anti-EV customer base?

(39:29) - The state of consumer health and interest rates

(45:36) - Zach’s inventory strategy

(47:30) - TikTok Live

(49:58) - Edmund’s online shopping survey

(1:02:24) - What trends are you excited about for the rest of 2024?

1. Affordability is key.

Affordability is everything in today’s market. Jessica notes that new vehicle incentives have started to creep back in after the microchip shortage but at a much slower pace than most would prefer. New cars are sitting on dealership lots for longer periods of time, reflecting the sticker shock buyers are feeling. On the other hand, used vehicles are getting cheaper and selling faster, indicating that customers are opting for preowned in greater numbers. Because of the lack of budget-friendly offers, financing deals like APR specials are proving to be an excellent driver of sales.

2. Buyers are settling for less.

Vehicle sales continue to vary based on brand and style, with affordability playing an important role in consumer preference. SUVs remain a popular choice for shoppers, although many are shying away from the bigger and more expensive models. Echoing this shift toward lighter, cheaper vehicles, pickup market share has also declined. Jessica notes that some new vehicle buyers are likely making purchases based on their financial needs rather than preferences. Based on previous patterns, this could lead to a surge in trade-ins within the next few years, as unhappy owners typically return to market faster.

3. High prices present challenges.

The sales environment has become much more challenging for dealers since the onset of the COVID-19 pandemic. Zac notes that many buyers are experiencing sticker shock, leading to difficult conversations in the dealership. Sales training that focuses on working with unhappy customers has become crucial to his team’s success.

4. Data is king.

Zac advocates for a data-based approach to pricing, discounting and marketing, emphasizing the use of specific insights over traditional book values or “gut feelings.” To implement this approach effectively, dealers should examine the minutiae of every decision they make. For instance, rather than stocking a model in high demand, ask what paint, trim and features buyers are looking for in that model, so that you can acquire the best possible match for your market.

5. Hybrids are popular.

While EV sales have continued to grow, hybrids have quickly become the preferred eco-friendly alternative for many consumers. Jessica explains that the practicality of modern electric cars, specifically in terms of driving ranges and charging availability, has pushed consumers to find a more convenient alternative. Caldwell notes that some consumers are even buying hybrids to keep up the appearance of going green without committing to a fully-electric model.

6. Buyers are more open to EVs.

EV consideration has improved dramatically in recent years. Zac notes that Only 10-15% of consumers are still ICE-only. While there are still some that will always purchase gas-powered vehicles exclusively due to preference for better towing capacity, torque, performance etc., most buyers today are open to exploring eco-friendly alternatives.

7. Interest rates are a challenge.

Interest rates are making a devastating impact on consumer finances and vehicle demand. Jessica notes that the average rate on a new vehicle is over 7%. For used cars, the average exceeds 11%. This translates into an average monthly payment of around $550, with $10,000 paid in interest over the term of the loan. On the retail side, Zac attests that Interest rates are the biggest operational challenge for dealers, underlining the importance of planning and preparation.

8. The impact of YouTube and Social Media.

Social media plays a much larger role in consumer purchasing decisions than dealers may be led to think. Zac shares that his team has garnered an incredible following through TikTok Lives, frequently seeing viewer counts in the hundreds of thousands for streaming simple videos such as walking through inventory. Jessica shares that 16% of consumers in a survey conducted by Edmunds attributed their car purchase decision to videos they saw on YouTube, while another 14% cited social media. Although shopping platforms like Edmunds remain the top player in consumer decision-making (29%), content-focused sites like Facebook, TikTok and YouTube present an effective but largely untapped opportunity for dealers to drive growth.

9. Advertising efficacy is mixed.

Automotive advertisements remain a mixed bag in their effectiveness, although the internet continues to be the dominant player. Only 46% of consumers said that they were influenced to purchase a vehicle by an ad they saw. Of that group, 28% watched their ad on YouTube, 26% on social media and just 12% on traditional TV.

10. What do buyers want?

When it comes to vehicle features, today’s buyers tend to show a preference for practicality. Consumers ranked the following features from most to least important: safety, fuel economy, performance, comfort, design, technology and driver assistance. Jessica also notes that the largest portion of buyers (40%) tend to spend one-to-three months researching before making a car purchase, with nearly a third (28%) conducting three-to-six months of research.