As new vehicle sales crest, dealers target new customers through service and repair

Dealers shift from sales to diversify through other business opportunities

Tysons, Va.—NADA Chief Economist Steven Szakaly and NADA Chairman Mark Scarpelli recently shared their insights on the overall economyand provided NADA’s sales forecast for new cars and light trucks following the first quarter. In addition to new car sales, they said dealerships are concentrating on alternative sources of revenue, such as service and repair, to bring customers through the door.

“Dealerships’ vehicle service business has seen tremendous growth,” Szakaly said.

Since 2010, the number of express service visits has nearly doubled. In the last year, there were more than two million warranty and customer-pay repairs and dealers serviced 50 million vehicles, which is approximately one quarter of the entire fleet. Express service numbers increased from $29 million to $32 million last year.

“We’ve become very disciplined in how we run our businesses. Our service, repair, body shops and parts sales has provided a wealth of new customers to our stores,” Scarpelli said.

Dealerships have become more competitive in attracting customer-pay service and repair, Szakaly said. Warranty work went up $6 million in total repair orders in the last year, while customer-pay work increased $7 million. Dealers are doing a better job of bringing those customers in, expanding their pool of consumers who now regard dealerships as a service center.

“The broader story is that dealers have shifted away from new vehicle sales to diversify in capturing other business opportunities and attract new customers,” Szakaly said.

 

New vehicle sales strong, though headwinds coming

Consumer demand for new vehicles continues to be “very strong” and Szakaly and Scarpelli expect sales to reach 17.1 million for 2017.

“Economic growth continues to be moderate and employment gains continue to be strong,” Szakaly said. “There is, however, a lack of wage growth overall, which continues to be one of the fundamentally troubling factors as the economy rebounds from 2009. Wages, in general, haven’t kept pace with the rise in prices. New vehicle shoppers’ income has risen, however, which has helped drive up transaction prices, due in large part to a greater demand in light trucks over cars (sedans have lost 12 percent market share so far this year, while trucks have increased 7 percent).”

Rising interest rates will represent a headwind, however, and put a small squeeze on consumers, but their end effect on sales will be zero because of the buying power and willingness to spend of the higher wage bracket of new car buyers, he said. “Rising sales incentives will also take some of the bite out of the rising rates. Another year of more than $17 million in sales isn’t something we would have complained about even four years ago.”

Competition among dealers remains strong, Szakaly said. There are more than 16,500 retail outlets, and the competition has kept dealer net profit flat (2.5 percent). The “flatness” illustrates how efficient business is, as the industry has averaged more than 2 percent every year since 2010. “Those productivity gains have been shared with dealer workers, which is atypical of most industries. Wages have risen in this industry by an average of 3 percent annually and aveage pay is more than $60,000 a year with benefits.”

 

Consumers demand more technology, safety

Scarpelli said dealers are meeting the needs and desires of their customers, though one area that doesn’t get enough attention is the demand for technology and safety, particularly in advanced drivers assist systems (ADAS).

“There’s a demand for vehicles with the latest and greatest safety features, such as automatic emergency braking, lane departure warning systems and collision avoidance technology,” he said. “The bottom line is that the technology is still developing — and it’s developing very rapidly in automobiles. There are more systems and better driver-vehicle interfaces in every model year.

“Consumers want those systems and they want the latest, safest version — that’s a big piece of the overall vehicle demand puzzle. It’s tremendously positive, not just because it’s helping sales, but because it leads to a safer fleet of vehicles on the road every year. Our job is to match customer ‘wants and needs’ with the right vehicle and prices they can afford.”

Parts & People

Parts & People is published monthly by Automotive Counseling and Publishing Company, Inc., a Colorado corporation, P.O. Box 18731 Denver, CO 80203, 303-765-4664. President-Lance Buchner. Founded by Lance Buchner and Dave Lucia.

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