Lean inventories caused by the global parts shortage crisis have triggered all sorts of changes in the new vehicle market. It is, of course, hard to gauge how the situation will pan out, but three key trends have emerged in the US market that OEMs would do well to pay close attention to. Arguably, these trends are applicable to any market.
– Ordering a vehicle: The general consensus in the US market is that a visit to a dealership culminates in the purchase of a new vehicle. But under the current circumstances, these transactions are proving less straightforward, with some OEMs doing their best to convince buyers to wait a few weeks. Ford, for example, is offering a discount of US1,000 to customers who order a vehicle. The situation is easier in the Super-Premium segment, where consumers tend to be looking for exclusivity, so it is little wonder that Bentley has been successful in working with buyers, allowing it to outperform the overall market.
What is undeniable is that vehicle orders help with sales flow and allow dealers to be better prepared for walk-ins – it is critical, however, that they keep buyers updated on their order status and maintain the lines of communication open.
– Loyalty: When Ford ended production of the Fusion, it had hoped that potential buyers would shift their allegiance to the Escape. But what if a buyer is unable to find one and, for instance, visits a Toyota dealership instead? Such a buyer would have the option of a Camry within the same segment and may even be drawn to the RAV4, given that Toyota has been able to maintain more plentiful supplies of the SUV throughout the year.
And what happens when the time comes to replace this Toyota? Will the buyer revert back to Ford, or stick with Toyota? If automakers hope to win back lost buyers, they will have little option but to track them closely.
– Finance: Throughout most of 2021, monthly payments in the US have been in line with 2019 and 2020 levels. Even with higher transaction prices, higher trade-in equity has helped to keep monthly payments under control. However, as OEMs keep cutting incentives, transaction prices continue to rise and, with them, monthly payments. The 84-month loans with 0% APR that were commonplace at the onset of the pandemic have now largely disappeared. There are still a few captive lenders offering 72-month loans, but non-captive lenders tend to offer longer terms.
Even with a higher APR, monthly payments are lower, which, ultimately, is what matters most to consumers. Captive finance is very profitable for OEMs, as well as an important loyalty tool. It is common, for instance, to buy a consumer out of their lease in order to ensure brand loyalty. The saying ‘out of sight, out of mind’ might be apt in this scenario.
Changes in loyalty could be the biggest consequence of lean inventories, but OEMs still have time to find solutions, given that the current crisis is unlikely to end any time soon.