When asked what 2022 holds for the country and the automobile industry, Eric Fifield, chief revenue officer for EFG Companies, starts with “the economy is going to grow.”
A recent economic forecast from The Conference Board supports his sentiments. The economic research firm forecasts the U.S. economy will grow by 3.8% year-over-year in 2022. Though expected growth reflects a slight cooling of the rebound economy, the firm predicts consumer spending will accelerate as supply chain challenges ease and spending on travel and entertainment increase.
Fifield foresees an automotive industry rife with opportunity in 2022, tempered by supply chain and inventory issues the first half of the year. He explains tightened inventory levels driven by supply chain shortages will drive a backlog of demand that unleashes once conditions normalize.
“The economy will continue to grow because we still have a supply problem,” he says. “There’s a demand backlog right now.”
Automobile buyers, he says, will fall into three categories. Buyers taking a wait-and-see approach, those who cannot wait much longer to buy because their lease or loan is up, and those with aging vehicles needing many repairs. “That’s driving demand right now,” he says.
He adds consumers will remain financially healthy in 2022, which will further boost demand for new and pre-owned vehicles.
“The retail automotive industry has seen firsthand just how financially prepared the average consumer is right now,” he says. “Between securing record trade-in amounts for their vehicles and government stimulus checks from the previous year, demand for vehicles is not only high, but consumers have more cash to put down on their next purchases.”
Fifield also issues a word of caution. Supply constraints will continue to dampen sales in 2022, but he predicts “these issues will get better. We are already seeing them improve in some areas.”
He adds, “With supply constraints continuing into next year, we are counseling our clients to focus on strategic planning and implementing a realistic approach to pricing, a continued focus on customer engagement, and implementation of value-added products and services to increase their market share.”
“If chip shortages and inventory levels do not normalize in 2022, it will drive up inflation and it will remain high,” Fifield says. “But I believe we’ve seen the peak, and it will start to normalize in 2023. That doesn’t mean, however, that inflation won’t remain high in the short term.”
In response to rising inflation, the Federal Reserve announced plans to taper off its bond buying and begin raising interest rates next year. This strategy marks a reversal of earlier plans to keep interest rates at near zero until early 2023.
All bets are off, however, if the new COVID-19 variant Omicron disrupts the global economy. “The variant could slow down everything and throw a curve ball into the progress we’ve made,” he says.
Fifield couches this by saying, “We’ve learned a lot over the last 16 months,” and that will help. “But it remains to be seen how dramatic Omicron’s impacts will be on the supply chain and inflation,” he says.
Preparing for Continued Supply Chain Challenges
OEMS reduced incentives by 45% over the past year. But Scott Kaskocsak, executive vice president, dealers’ services at EFG says, “Strong consumer positions and favorable credit terms spell revenue opportunities for dealers who know how to manage purchasing. This means selling into their pipeline, rather than just what is on the showroom floor,” he says.
Kaskocsak notes that as global supply chain woes start to unwind, “customer willingness to preorder units with flexible financing can mean the difference between a sale and a miss.”
Fifield agrees with Kaskocsak and says dealers must improve incentivizing trade-ins. “They need to give consumers reasons to trade in their vehicles because that’s what is driving supply right now,” he says. “Consumers cannot get those incentives from OEMs right now. It’s got to come from either customer trade ins or the wholesale market.”
He tells dealers to work their CRMs and market to customers with soon-to-expire loans or leases. “Get them to put down deposits on a new vehicle and sell into the pipeline,” he says.
This requires dealers to reconsider their sales processes, work on digital retail sales, and improve customer engagement. “The key need will be to engage customers in multiple ways,” he says. “The dealers on the forefront of this are ahead of the game. Those that do not market themselves well or lack diverse ways to engage customers will fall behind.”
As the lines between online and in-store sales continue to blur, dealers must embrace a hybrid sales model, according to Fifield.
“This will require new training models and a distinct set of skills for sales professionals,” adds Kaskocsak.
Fifield stresses, “Training is the key.”
He stresses digital sales are not a black-and-white process because customers are dynamic. They want to be engaged in multiple ways and throughout the process. “They may want to engage with a live person at any time, and you must be ready for that,” he says. “Training and education for the sales and finance department will help them understand customer behavior and know when to engage the customer at different interaction points. They need to know how to transition customers from online to in-store, and from in-store to online.”
Dealerships also need online digital tools that mimic what happens in the showroom. For example, tools that offer the ability to do a digital test drive. “In the showroom you can put a customer in the driver’s seat, walk them around the vehicle, or look at components under the hood,” he says.
Sellers can use technology platforms like Zoom or Microsoft Teams for virtual vehicle tours. “You can point out the electronics and navigational aids in a heads-up display, so they feel like they’re sitting in the showroom,” he says.
Analysts expect increased dealer merger and acquisition activity to continue in 2022, which puts pressures on F&I agents to put more emphasis on relationships and support, according to Adam Ouart, vice president of Agency Services, EFG.
“Strategic dealers are pivoting to a service retention model to maximize profits and retain customers,” he says. “Agencies should mirror that focus, collaborating with clients to boost maintenance marketing options that increase the ‘stickiness’ of each sale and keep customers returning to the dealership for service. A good example is the use of maintenance programs in the F&I office. Enhanced dealer customer service—from vehicle deliveries, preorders and a hybrid and offline sales model—provides an opportunity for agents to guide and advise, providing high value consultation.”
Inside the dealership, F&I professionals must consider what will add value to the customer. “You’ve got to speak to the protection products that are unique to the customer and match their driving habits,” Fifield says. “You need to maintain a variety of products that speak to the customer’s driving habits.”
Fifield recommends putting protection product information online. Videos provide an excellent means of educating customers about these products and why they make sense. As protection products for electric vehicles become more prevalent, these products will need a prominent spot online.
Financing will change in 2022 as credit unions become creatively competitive to capture auto loan volume, according to Brien Joyce, vice president of lending services, EFG. A research brief issued by TransUnion and the Filene Research Institute reveals that many credit unions have extremely low delinquency and charge-off rates, showing they have strayed from the model of being accessible to all people regardless of credit profile and have declined loans that might have made good business sense.
“To reverse course in 2022, credit unions looking to recapture lost market share must stay true to the member-first mindset,” Joyce says. “The playing field has moved from competing on APR to competing on value. As credit unions look to return to their roots, we recommend they build value into their auto loans with consumer protection products, like debt protection products,” he says.
The worst of 2021 may be behind the auto industry as it heads into 2022. But there is still work to do. The winners in the year ahead will be those companies with solid strategic planning, a realistic approach to pricing, a heightened focus on customer engagement, and those offering value-added products and services.
Ronnie Wendt is an editor for Agent Entrepreneur.