How the Pandemic Will Strengthen the Automotive Industry More Than the Great Recession

Ten years ago the Great Recession hit the automotive industry hard, resulting in the federal Cash for Clunkers program, bailouts, and bankruptcies. Today, we are in the midst of the worldwide Coronavirus pandemic, forcing many dealerships to physically close doors, but also quickly adapt to operating virtually, with remote or limited staff and new safety measures in place. Additionally, many factories closed for up to three months because of health and safety issues, which has now created a vehicle shortage. 

While the COVID-19 outbreak has certainly been tough for everyone, there are a number of ways our industry can mitigate the downturn and come out of this period stronger than ever.

I started Digital Air Strike during the Great Recession after finding myself out of work when my business partner closed our agency in the midst of OEM bankruptcies and dealership shutdowns. I knew that even though advertising budgets had been cut dramatically, dealerships still needed to reach consumers — much like today. Ten years ago, social media was just starting to be used in business-to-consumer communication. This was before business pages even existed on Facebook. Consumers were there first — in droves. At the time, it occurred to me that social media could be a way to go where consumers were, instead of spending far too much money using traditional advertising to try to attract consumers to a static dealership website. So Digital Air Strike was founded to help dealers monetize the low-cost reach, engagement, and opportunity of social media, even before there was any advertising on Facebook, Twitter, and YouTube. Instagram wasn’t even founded until later that year. At the time, we decided to leverage technology and embrace all forms of innovation while doing whatever it took to get the attention of consumers, and it worked.

Today, we have grown to over 150 employees that work with more than 5,000 dealership and OEM clients nationwide. Once the pandemic hit, our team had flashbacks to the importance of leveraging technology and being quick to adopt new processes and tools to connect with consumers on behalf of our dealers. We are finding that dealers are even more receptive to using new technology, including video and AI, to communicate with customers in new ways that include engaging with them and converting consumers into customers in an all-virtual environment.

While the COVID-19 outbreak has certainly been tough for everyone, both personally and professionally, there are a number of ways our industry can mitigate the downturn and come out of this period stronger than ever. Yes, even with low inventories and dealer showrooms running with fewer employees, there are advantages that our industry can leverage today so we come back faster than during the Great Recession. 

Here are three areas to focus on and leverage in your business:

1. Better and faster technology: In 2008, technology devices were larger in size, slower in bandwidth and data, and they just were not as mainstream as they are now. Today, more dealership staff and consumers are more comfortable doing more things online in a virtual environment. Most people now have a smartphone in their hand, a computer on their desk, an iPad near their couch, and smart TVs in their living room. They go to social media sites and text/message through multiple apps and devices on a regular basis. Dealers are quickly learning to take advantage of this by suddenly having to embrace technology that was previously “nice to have.”  We are seeing many of our dealer clients become more open to reaching out to customers through text messages, nurturing leads through artificial intelligence and automation, and using video for vehicle walkarounds and custom messages to prospects. The need for businesses to connect with customers through technology has also never been greater, and consumers are spending even more time on Facebook (usage has increased 53%) and Instagram (usage has increased 32%) than ever before.
2. History and knowledge to fall back on: The auto industry went through a recession not too long ago, so dealership owners and manufacturers have the knowledge and expertise to handle it better than they previously did. Our dealer clients were quick to cut budgets, furlough staff, and jump in to carefully examine every expense. Published reports show that the Detroit automakers are weathering the coronavirus storm without any talk of bankruptcies or bailouts as they did in days past. Morgan Stanley’s “shutdown analysis” gave a vote of confidence that GM, Ford, and other manufacturers “can largely avoid the fate many companies experienced in 2008/2009.” We are now benefiting from the knowledge gained from the hardships of prior years and are to some degree embracing the opportunity to actually slow down a little bit, take stock, and reinvent how we can better engage with consumers leveraging technology in new ways. Overall, we have become more nimble and able to pivot. We have seen dealers leverage test drives at home to actually shorten sales cycles, as the consumer now seems more likely to purchase the one vehicle brought to them. Masks have become a branding opportunity. We are now much more resilient in many ways thanks to the lessons learned during the prior downturn.
3. Federal help and plenty of companies hiring: The third advantage during this pandemic is while millions of people are out of work or on furlough, they have received unemployment funds, many of which are higher than their jobs typically paid. The Paycheck Protection Program was a huge lifeline to many dealerships, allowing them to retain staff and literally keep the lights on while adapting to the new contact-free retail environment. The manufacturers offered unheard of incentives, and mortgage rates are at historic lows. Many consumers didn’t lose their jobs – they just started working from home, which means things like their home and vehicles have now become more important. The road trip has replaced airline flights during summer vacations helping to also increase service business for dealers. Some industries are thriving, such as grocery stores, delivery and cleaning services, game makers and sellers, and fitness equipment companies. Technology companies are still hiring, and they are needed in many areas more than ever before. The medical professions, our real heroes today, need adjacent hospital and administrative assistance, so they are also hiring in record numbers. Used car sellers are also on this list, according to the U.S. Chamber of Commerce, because the pandemic has forced people to socially distance and avoid shared-use options, including public transit. Many people who have never owned a car are buying a pre-owned vehicle, and others are taking advantage of great OEM incentive offers to buy that car they never thought they could afford. 

“As margins on the sale of a new car have fallen since the Great Recession, dealers have done an excellent job focusing on their service and parts business,” said Patrick Manzi, chief economist with NADA (National Automobile Dealers Association), in the recent NADA Data financial profile of new car dealerships. “Since 2010, service and parts sales in the average dealership have increased by 5.4% per year on an average annualized basis.”

During the Great Recession, automakers had to figure out how to cut billions in capital expenses and costs. GM CEO and Chairman Mary Barra said she made it her company’s mission to “fortify balance sheets in preparation for the next downturn,” despite not knowing when or how it would occur. To prepare for the next downturn, she cut costs, streamlined management, closed factories, and sold off operations in Europe that were costing the company money. Barra told the Associated Press she sees a “relatively short-lived” coronavirus recession, with recovery by early 2021. 

"We are seeing a recovery," Barra told the Associated Press. "We think it's going to be a relatively short-lived recession. But we have a long way to go because we went to a pretty low base. The new outbreaks do pose potential setbacks, but we're hopeful that the U.S. economy will be back to 90% of pre-pandemic levels early next year.”

Digital Air Strike has been fortunate to work with dealers that are, despite the slump, leveraging technology to provide 24/7 customer service and seeing record profits.

Rice Toyota in Greensboro, North Carolina, had never used text messaging to reach prospects before the pandemic. They used new text alerts paired with AI chat bots to communicate to prospects that they were open and the great new incentives that were available. The dealership had 80 responses within an hour and sold four cars the first day after sending out its first message in April — when no one was selling any cars. Over 200 people responded positively within the first two days asking for more information. Rice Toyota directly linked another 10 car sales that week after combining text, video, and AI message bots, which was truly in record time, even without being in the midst of a pandemic.

“Leveraging the technology has really helped me bring our team into this digital retail space, especially during COVID-19,” said Andy Slaughter, the general sales manager of Rice Toyota. 

Billions of dollars for the Small Business Administration’s Paycheck Protection Program, federal stimulus checks, and the extra $600 in unemployment benefits are continuing to help small businesses and consumers weather the coronavirus storm a little easier. Even with the additional $600 expiring, new federal programs are in the works and should continue to boost consumer spending to a far greater degree than what was done during the Great Recession.

The biggest change that will come out of this hopefully shorter economic downturn is that using digital technology, new at-home test drive/delivery services, and ultimately spending less time in the dealership will likely become the norm for car buyers and service customers — all while hopefully increasing profits for dealerships for years to come. Dealers will be able to spend less on traditional advertising, cut overhead by doing more with less staff, and leverage technology to match the right consumers to the right vehicles. We will also have found better ways to present additional vehicle enhancements, such as F&I products and accessories, by leveraging technology to upsell, cross-sell, and retain more customers. 

We certainly hope that in the near future the pandemic will lessen its grip on the entire world and medical advances will not only help reduce the impact of COVID-19, but also improve outcomes for many kinds of illnesses. When that day comes, I am convinced that the recent lessons learned, including our crash course in tech savviness and adaptability, will give all of us and the automotive industry many new opportunities to thrive.

Alexi Venneri is the co-founder and CEO of Digital Air Strike, the award-winning social media, intelligent lead response, and consumer engagement technology company. 

Read: A Much-Needed Alignment for Dealers and OEMs

Originally posted on Agent Entrepreneur