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What Dealerships Need to Know about 2023 to Be Prepared

Posted by Steven Mendoza on Jan 19, 2023

Despite the world returning to a new normal, the automotive dealership industry continues to be in a crisis regarding vehicle sales and inventory. A large part of that is the semiconductor chip shortage that has afflicted the industry for more than two years. As a result, chips are now the new oil because they’re in greater demand per TS Lombard.

Taiwan and South Korea currently have a monopoly on chip products, but it’s not permanent. The ball is in their court. Unfortunately, the automotive industry isn’t the only one that’s dependent on chip production. Manufacturers are prioritizing computer and smartphone vendors over the automotive industry.

What’s the Current State of the Automotive Industry?

The lack of supply has forced Ford and General Motors to close their plants. CNBC reports these events have cost the industry over $200 billion in revenue in 2021. This is almost double the originally projected $110 billion.

To combat the problems, manufacturers have pivoted by searching for creative workarounds. For example, many manufacturers have removed features that require semiconductor chips. Tesla supposedly changed its vehicle software to use a different type of chip. Nonetheless, the supply chain woes continue to affect the industry.

“For much of 2022, tight inventory (supply) has been an anchor holding back the market,” says a Cox Automotive news release. “And indeed, with inventory historically low, new-vehicle sales have been depressed. Through the end of Q3, the new-vehicle market was down more than 12% year over year, and last year was hardly strong by historical measures.”

What Does This News Mean for Automotive Dealerships?

The aforementioned CNBC article confirms Cox Automotive’s statement in indicating consumer demand may be slowing down. This comes at a time when inventory shows signs of improvement. The reason for this is the prices may have reached a point where it’s not affordable for most consumers. Rising interest rates are also a barrier.

While supply has improved slightly, it will take years to resolve the vehicle shortage. Chip makers are working to expand capacity. It takes about 18 to 24 months to ramp up a new plant or capacity. In the meantime, this is a difficult time for the industry.

Alvarez and Marsal report vehicle inventory has grown by 160,000 units during the third quarter for a total of 1.43 million vehicles. This is still 32% below the average.

Despite record-high vehicle prices, there is good news. The New York Times reveals consumer demand for new vehicles remains steady. General Motors has seen a 24% increase in U.S. sales in the third quarter of 2022. The automotive company says it has experienced an increase in its inventory of computer chips.

CNBC confirms automotive dealerships have seen record profits. Hyundai and Kia indicate they hit a sales record in the third quarter. Volkswagen sales climbed 12% in the same quarter.

Notwithstanding, The New York Times article references Edmunds data showing the third quarter had an estimated 3.3 million sales of new vehicles. This is down from the year before.

Other Problems Affecting Automotive Dealerships

Semiconductor chips aren’t the only item that’s in short supply. It’s also hard to find dashboard molds and foam for seats. There’s a shortage of plastics, which the industry uses to store windshield wiper fluid.

What does all this mean for vehicle sales in 2023? It’s possible the industry will see improvements in 2023. For that to happen, auto manufacturing will need to ramp up.

It does not look like automotive dealerships will fill up their lots to pre-pandemic levels anytime soon. It’s critical to make the most of empty spaces on the lot. Otherwise, passers-by will think the dealership is closed for business.

In the meantime, what can automotive dealerships do now to continue to make sales at a time when customers may not be able to buy? Focus on growing another part of the dealership business. The great thing about doing this is it will enhance your customer service and build stronger relationships. When that happens, customers will be more likely to buy from you again and continue using your services. Here are the two ways your dealership can pivot.

1. Grow Dealership Service Lanes

A vehicle shortage may affect new and used inventory sales, but it will have no bearing on services. One thing is for sure. There are many vehicles out there that still need servicing. According to CarDealer Magazine, nearly one third of drivers will keep their vehicle for longer periods because of the higher cost of living. So, add or expand your service center. Check out this data from J&L Marketing that says customers are 86 times more likely to buy their next vehicle from the automotive dealership that services and maintains their vehicles.

In planning to expand the dealership service lanes, the dealership might want to add other services. For example, does your dealership do inspections? These can lead to opportunities for other services such as alignments. It turns out alignments are one of the highest margin services dealerships can offer.

Does your dealership have tire and wheel services? Many customers often first encounter a dealership through these services. This is a great opening to win them over and turn them into repeat customers.

A huge growing market is Advanced Driver Assistance Systems (ADAS). Experts predict this market will multiply by $19 billion between 2021 and 2025 with a CAGR of about 8% according to Technavio Research. It would be worth exploring ADAS parts and equipment as part of your offerings.

Doing this one thing can blow up your customer service and build a stronger relationship with customers. And that’s adding dealership technology solutions. They help enhance the customer service experience and grow dealership revenues. Using this technology will make it possible for the dealership service department to operate more efficiently through all parts of the customer touchpoints.

Automating the service lane with technology lets you stay on top of the entire process using mobile devices and tablets. It puts the latest information in the hands of service techs. Any time a customer follows up, they can access the update with a few taps.

The system automatically sends updates to customers using their preferred communication option. This strengthens the customer relationship and loyalty as they appreciate not having to contact the dealership for updates. The techs can also add photos of the vehicle to the updates. When vehicle owners get regular updates, they’ll be less likely to contact your dealership. That will ease the staff’s load.

The key to a successfully-run service lane and customer service is to build and document a seamless process and workflow from when the customer drops off the vehicle to when they pick it up. The technology shortens wait times, keeps customers apprised of service progress, and automates maintenance reminders to encourage customers to schedule vehicle servicing. The app can automate appointment scheduling, which also takes the onus off the employees.

Not only are dealerships dealing with a shortage of inventory but also qualified techs. This technology allows them to focus on the core part of their jobs without wasting time on things that can be automated.

2. Invest in a Dealership Service Lane Kit

As if dealing with shortages wasn’t bad enough that forces dealerships to watch costs. Due to liability and personal injury claims, dealerships pay a lot of money for medical bills or vehicle repairs. It could be the dealership isn’t liable, but these are hard cases to win without proof.

These claims may cause insurance premiums to jump. Since the dealership is already paying for the costs associated with a liability or personal injury claim, the last thing it needs is a higher premium. Stealth’s service lane kit helped a dealership sidestep the cost of a personal injury claim from a customer claiming they slipped and fell on the lot. The service lane kit includes video recordings, which proved the dealership was not responsible.

The service lane kit saved another dealership from losing money. A customer asked to talk to the service manager. They claimed the dealership’s techs had dented, scratched, and damaged their vehicle. The dealership contacted Stealth for help. Stealth’s video analysts reviewed the service lane kit cameras to determine what happened.

The analyst sent the proof to the dealership that showed the customer’s vehicle came to the dealership with the damage already present. The dealership showed the video to the customer and shielded itself from the high price associated with a false claim.

Without a service lane kit, if a customer claims the dealership damaged the vehicle, the dealership will have to fix it for no cost to the customer. However, it pays a big price for this repair as it’s using up employee time and getting in the way of paid work.  Not to mention, this could turn into a money-making opportunity for the service department. If you can prove the damage was on the vehicle prior to entering your service area, you could get paid to repair it.

That’s why it’s worth investing in the service lane kit (SLK). It guards the dealership against these pricey false claims. With the SLK, you’ll avoid unnecessary expenses, make customers feel supported, and increase customer loyalty and retention.

Stealth’s service lane kit contains high-definition IP cameras programmed with advanced video analytics. Stealth puts these video cameras in the service lanes to capture the exterior of all vehicles that come into the service lane.

Every recording has time and date stamps to speed up the search for a video to follow up on customer claims. The videos also demonstrate your dealership’s dedication to safety and providing top customer service.

Stealth partners with many automotive dealerships. To learn more about dealership service lane kits and security, pick up this guide to four auto dealership theft trends. If you have questions or want to chat, contact us. Texas Private Security License Number: B14187