Who doesn’t like a nice front-end gross profit? Most of us would be lying if we said otherwise. In the last three years, things have been different, right? For the first time in years, we consistently held a healthy front-end gross profit on new vehicles. Something that seemed to be of a bygone era. Previously, we’d focus on how much we’re willing to lose to hit the stair-step program from the OEM. It has been refreshing, though another conversation is to be had for those dealers who have charged egregiously above MSRP (I’ve never sold a car for over MSRP in my life). So here we are today, and it’s as if the days of losing front-end gross are behind us. Sounds too good to be true, doesn’t it? As inventory supply eases, we must prepare ourselves for the days ahead.
There have been several articles as of late that indicate the days-to-market supply has steadily increased. It’s evident that increasing inventory levels will provide customers with more options. Options they haven’t had in the last three years. Where previously, the customer had a choice, you either purchase what I have on the lot, or you don’t. Heck, vehicles were selling before they even hit the dealers’ lots! But there’s a good chance that’s about to change in the coming months.
How will that change? Well, it depends. Some suggest that it will be a chaotic dance between the OEM, Dealer, and the customer. Noting that whoever “blinks” first will set the tone on pricing. Will the OEMs start to provide customers with incentives? Will the Dealers fall back into offering discounts off the front-end gross selling under MSRP, or worse yet, below invoice? Or will the customers refuse to pay at or above MSRP? Who will blink first?
There are a few things to note in these questions:
- Customers will have more options if there is an increased supply of vehicles on the dealers’ lots and having more options can create less urgency on the customer’s behalf.
- Whereas arguably, the last three years have created a deep sense of FOMO if the customer didn’t purchase the vehicle, they’d literally be missing out.
- But with more inventory and increased APRs, the customer might be less enthused to purchase a car.
- You pair that with dealers slipping in responding to customer inquiries or the Sales Consultants unable to follow a sales process on the dealer level, and we’re potentially putting ourselves in a tough spot.
A tough spot that might make it harder to sell a vehicle to the customer. Think about it, if the customer no longer has FOMO – as there’re more options to choose from – will they be as willing to pay at or above MSRP with increased financing costs? Not to mention, we have to think about where the OEM will stand in this situation. Suppose the OEM starts to offer the customers increased incentives paired with increased inventory and potentially less demand. In that case, it can create a trifecta of madness that has the potential to upend the days of selling at or above MSRP.
Not to mention, if we as dealers do not offer the customer the experience they expect, i.e. a seamless transaction vs. one riddled with breakpoints and frustrations – are we giving the customer a reason to do business with us? Albeit, this isn’t a doomsayer “run for the hills” mantra. But make no mistake; it is about ensuring that our dealers have strong, solid sales processes so that as pricing eases, inventory increases, and the OEMs reevaluate incentives, we’re offering our customers a positive experience. Giving them a reason to purchase their next vehicle from us.
So how do you make sure you’re prepared? Well, it’s simple. Start with a free stealth test. Having insight into your store’s potential breakpoints will allow you to tackle the concerns. It’s tackling those concerns that can (and will) set your dealership apart from the rest.
As the Vice President of Phone Ninjas, Chris delivers leadership, coaching, and mentorship to 55 team members providing software sales and phone skills coaching. He fosters powerful partnerships and collaborations with leaders across various business sectors, establishing expectations, communicating vision, and escalating performance to maximize productivity and effectiveness.