The automotive industry is experiencing a used-car renaissance with consumers heavily favoring used inventory over new for their vehicle purchases. While many factors are in place, this shift could primarily be attributed to used vehicle quality being better than ever, while new car prices continue to skyrocket.
In fact, per Cox Automotive data, in August, the average price of a new car was $37,401. Additionally, interest rates have recently decreased a second time with the potential for further cuts made in the future. Millennials, a generation once assumed to prefer ridesharing over vehicle ownership, are also playing a role as they’ve increased their used inventory purchasing. All these conditions have created a pathway to success for independent dealers in 2019.
At NextGear Capital, we educate our independent dealer clients on the evolving used-car marketplace and help them better understand how floor planning their inventory drives maximum results. Here are the top trends we’ve seen effecting independent dealers in 2019.
Competition for used vehicles is rising
For independent dealers, these market conditions are primed for taking advantage of floor planning to boost sales cycles. Turnover for used inventory is already 10 days fewer than it was in 2018. However, franchise dealers have also taken notice of increased consumer demand for used inventory and are stocking their lots accordingly. As a result, independent dealers have more competition for used inventory and are under added pressure to land the right vehicles for their customers.
Consumer finance companies are bullish on independent dealers
A significant amount of consumer finance companies are now expressing interest in independent dealers, which until recently, were considered taboo for these lenders. However, consumer finance companies and banks have noticed that used cars are becoming a more attractive investment. This is thanks to the improved quality of inventory across the board and the uptick of millennial consumers interested in purchasing said vehicles.
Data driving results for independent dealers
For dealers to be successful, it’s important they understand both who their clients are and the vehicles they’re interested in – with data being the key to this equation. Data can unlock a treasure trove of buyer insights to help independent dealers strategically source the exact inventory their clients want. Ultimately, data enables dealers to make better decisions about which auction to attend and what inventory to purchase. Floor planning partners, such as NextGear Capital, can look at the historical data of a dealer’s business, reviewing information such as units sold per month, lot capacity, average turn time and holding costs. With that knowledge, a solid partner can then map out a plan for dealers to function more efficiently and increase profits.
Dealers are taking advantage of market conditions
With the many factors contributing to favorable market conditions, there was a fear many independent dealers would buy too quickly and suffer as a result. However, throughout 2019, most independent dealers have become more savvy than aggressive in their decision-making. They understand that their processes must align to succeed in this environment. This means having the right technology tools and the proper line of credit in place before acquiring new inventory.
Overall, NextGear Capital has seen an increase in flooring volume throughout 2019 which indicates to us that dealers are confident. To ensure they finish the year strong, independent dealers are encouraged to be mindful of the trends listed above, but also remain consistent and disciplined and the results will follow from there.
Lisa Mackie is the vice president of sales at NextGear Capital.