Report: COVID-19 presents vehicle dealers with 2 major problems
“Vehicle Dealers in the U.S. have been hit by two major problems stemming from the unprecedented onslaught of COVID-19: falling new car and light truck sales and fewer vehicles under 5 years old.
“The historic plunge of the 2020 vehicle market that started in mid-March is depriving Dealers of income from their showrooms and will affect their future service bay business by reducing the number of cars and light trucks under 5 years old.”
— Jim Lang, publisher, Lang Aftermarket iReport
Dealers Face Two Problems
The projected 20% plunge in new car and light truck 2020 annual sales means that Dealers in the U.S. will lose over 4.1 million of new vehicle volume this year (compared to the record-high annual U.S. sales levels from 2016 through 2019).
Falling vehicle sales will also reduce the number of cars and light trucks under 5 years old on U.S. roads, which have been the mainstay of Dealers’ bay business.
Many Dealers are reacting to this dual threat with a coordinated strategy. Dealers are promoting pre-owned vehicle sales to help offset the historic implosion of the new vehicle market.
Used vehicle sales, in turn, can provide Dealers with bay business to replace the repair and maintenance volume lost as a result of fewer vehicles under 5 years old.
More Profits in Used Vehicles
Dealers generally make more profit per transaction from used vehicles than they do by selling new models. By promoting service bays to pre-owned (used) vehicle buyers as an added benefit, Dealers are developing future bay business.
Dealers also generate significant bay business by reconditioning used vehicles to make them ready for resale.
More Bay Business from Used Vehicle Buyers
Many Dealers find that they can develop more immediate bay business from pre-owned (used) buyers than with new vehicle purchasers, since used vehicles require more repair per mile than new vehicles during the first few years following their purchase.
Changing Vehicle Bay Mix
To encourage used vehicle buyers to return to their bays for repair and maintenance, many Dealers are adapting an all-makes and all-years bay strategy. This can also help Dealers to develop new bay customers beyond their used vehicle clientele.
In many cases, Dealers (sometimes supplied by their own vehicle manufacturer channels) are offering lower-priced brands (compared to OE brands) for older vehicle repair as well as for nameplates other than those that they sell new.
Quick Service lanes that many Dealers have added are helping to expand the nameplate and age ranges of the vehicles that they service.
Lower Labor Rates
Some Dealers also offer lower labor rates for older vehicles (especially to buyers of their used vehicles) compared to what they traditionally charge to service newer models.
Synergism of Used Vehicles and Service Bays
Dealers are promoting their bays as an “added value” to help sell pre-owned (used) vehicles, which increase service business for Dealer bays.
This synergetic strategy has been success and will be continued by many Dealers even when higher sales return to the U.S. new car market. This will help to boost the aftermarket presence of Dealers in the future.
Six Major Takeaways
- COVID-19 has presented Dealers with two major problems: lower new vehicle sales and a reduction in the number of cars and light trucks under 5 years old, which traditionally have been the lifeblood of many Dealers’ bay business.
- Used vehicle sales can offer Dealers a solution to both of these problems by replacing lost new vehicle volume with used vehicle sales and supplementing their bay business with the reconditioning of used vehicles and by promoting Dealer bays to used-vehicle buyers as a resource for repair and maintenance.
- Dealers average greater profits per transaction from used vehicles than they do in selling new cars and light trucks.
- Many Dealers have adopted an all-makes and all-years repair strategy for their service bays in order to accommodate used-vehicle buyers as well as attract new customers to their bays.
- Dealers are offering lower-priced parts brands for older vehicle repair as well as for nameplates other than what they sell new. Many Dealers are also adjusting labor rates for older vehicles and for used-vehicle buyers.
- The synergism between used vehicles sales and service bay promotion is a strategy that many Dealers will use to their benefit over the few years. Many Dealers will continue to promote this strategy even after the new vehicle market returns to pre-Covid levels, which will help boost their aftermarket presence in the future.
Copyright 2020 by Lang Marketing Resources, Inc.
NOTE: Special thanks to publisher Jim Lang for granting us permission to publish the Lang Aftermarket iReport.