I’ve been in the automotive industry for more than 15 years and, hands down, this is one of the most unusual markets I have ever seen. Despite predictions by industry experts that independent auto dealers would not fare well during the pandemic, they have largely survived and, in some cases, even thrived.

Studies by Cox Automotive reveal that dealer sentiment remains optimistic. The market outlook index was down slightly from Q2 to Q3, but still high and, more importantly, above levels recorded in Q3 of 2020 and 2019. The profits index also saw a slight improvement compared to the prior quarter, although independent dealer profit reporting was flat from Q2 to Q3; likely due to increased expenses versus Q2.

The year ahead presents some distinct challenges, but also some unique opportunities. And while there is room for growth, independents will need to continue to evolve in order to take advantage.

Key drivers for anticipated growth in the used car sector include fewer peer-to-peer transactions, resulting in greater volume for dealers. In addition, there’s a growing supply of used inventory in the 5-12 year-old range. This represents inventory that has aged out of a lot of franchise models, but still has plenty of service life left. For these reasons and more, NextGear Capital expects the industry will continue to thrive all the way through 2023.

Despite the macroeconomic factors that are beyond anyone’s control, independent dealers can still take command over how they navigate the road ahead. Here are a few areas where opportunities lie:

• Relentless sourcing: New-car production is low, there are fewer lease returns making it into the wholesale market, and fleets are competing for used car supply instead of adding to it. All of this is contributing to an inventory deficit in the used car sector. As a result, used-car dealers will want to have a firm grasp on what their customers are looking for and be relentless about finding it. That means expanding their sourcing horizons, whether it’s live or online auctions, other digital sources, the general public, other dealers or any other source.

• Take advantage of technology options: Dealers will want to embrace technology to tap into the rich data that’s available to guide their decision making. Using available digital platforms to determine the right inventory, where to find it and how much to pay for it in real-time, can lead independents to make smarter acquisition strategies and pricing decisions.

• Finding the right funding balance: Whether it’s operational working cash or floor plan financing, having cash on hand allows dealers to act quickly when they find the right inventory or opportunity to enhance their dealerships. Successful dealers minimize operational risks by balancing cash and credit to maintain and grow their businesses. An inventory strategy based solely on available cash will both limit purchasing power and the ability to make needed business moves, especially in an unpredictable environment with higher prices. The right floor plan can help dealers use the extra cash flow to improve infrastructure, hire a needed employee, invest in technology or otherwise put it to work to ensure they’re running efficient and profitable businesses.

Our data projects retail volume for independent dealers will grow in the coming year, and dealers will need to be ready to adapt toINA capitalize on this growth. Taking advantage of every source of available inventory, implementing new technology and ensuring they have the capital needed to do it all will be key. As today’s consumers look for more value-conscious buys, the independent dealer stands to gain.

Scott Maybee is president of NextGear Capital, one of the largest independent inventory finance companies in North America, providing flexible lines of credit for dealers to purchase used inventory at more than 1,000 auto and specialty auctions and other inventory sources throughout the United States. For more information, visit www.nextgearcapital.com.