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The Lessons of 2018: Sell Smart, Relationships Matter, Embrace Product Change

A strong automotive industry started to cool off in North America in 2018, while slow moving product trends suddenly showed up on dealership floors with a vengeance. Meanwhile, fears of a subprime auto loan bubble began largely to recede. Automakers began to go public with specific plans for the future.

Sales Sag

Headlines like Bloomberg’s “The Global Auto Industry Is Likely in First Recession Since 2009” don’t make auto dealers optimistic for 2019, but for those who remember the dark days of the Great Recession there are few predictions things will get anywhere near that bad. Industry analysts predict automaker production will end up down 0.6 percent in 2018 from the previous year, with another 0.4 percent drop in store for 2019 before growth resumes slowly in 2020.

Dealers who have invested in sales and marketing efficiency while building customer relationships will be the ones to prosper in a tightening marketplace. It’s in slower markets, more than anywhere else, that the efficiency of customer retention and predictive marketing truly shine over “spray and pray” marketing techniques. When margins tighten, the dealerships that built loyalty through excellent customer experience have a measurable advantage over those waiting for the phone to ring or door to open.

The Subprime Bubble that Wasn’t

In 2017 and even early into 2018, many pundits and analysts were predicting a traumatic 2018 in auto lending, as a subprime auto loan “bubble” was set to burst. While there were some changes in the marketplace and some smaller lenders went out of business or got out of the market, the biggest news in the subprime market in 2018 was that lenders shortened loan terms, managed interest rates, limited credit lines and otherwise managed down subprime risk to the point where delinquency was down even as subprime lending was up in the third quarter of 2018.

Subprime lending is expected to increase again in 2019 to 16.5 percent of overall origination volume, according to TransUnion’s consumer credit forecast. However, it’s worth noting that in 2007, at the start of the last recession, that figure was as high as 20 percent.

Dealers benefit from having a diversity of finance options available to them. While tighter risk management may create challenges in the short term for getting customers approved, the changes by lenders will be healthy in the long term, as a defaulted buyer loses almost all of the value invested in their relationship. The solidifying subprime lending market is an opportunity for dealers to take a fresh look at their customer relationship management and build rules to identify potential candidates for financing who had been left out during the lending market corrections of 2016 and 2017.

Product Mix Keeps Trucking Along

In a way, 2018 was the retirement year for the sedan as sales tumbled, while trucks and crossovers took center stage and manufacturers announced plans to thin out already-lean sedan product portfolios.

This year, the trends included some of the most dependable performers on showroom floors. The 2018 Honda Accord, recognized by many as “the best car Honda’s ever made,” sold so poorly at one point the manufacturer had more than a hundred days of inventory on hand, forcing production cuts at its Marysville, Ohio plant. Overall, Accord sales in the United States were down more than 12 percent on the year as of November, while Honda’s truck sales were up more than four percent.

At Toyota, the mainstay Camry was supplanted by the RAV4 as the company’s best-selling vehicle in the U.S. market and Corolla sales were down almost 11 percent, while the company posted some of its best sales months ever for light trucksThe Camry remained the top-selling car in the North American market, it’s now the seventh best-selling vehicle behind the F-series, Silverado, Ram, RAV4, Rogue and CR-V.

Sedan sales market share dropping to its lowest-ever level in November of 2018, and the industry is responding to the shift in consumer preferences. General Motors announced the end of at least six nameplates from its portfolio. Ford also gained widespread consumer attention when it announced that by the end of next year, it expects almost 90 percent of its product portfolio to be trucks, SUVs and commercial vehicles. The only sedans that will remain are the Mustang and the new Focus Active.

For dealers, changing product mix means new demands on sales teams as well as new challenges for customer experience. While product mix is driven by aggregate consumer demand, customer relationship management means treating customers as individuals, not aggregates. This means individual customers who’ve been happy and loyal buyers of discontinued vehicles such as the Ford Focus or Cadillac XTS should receive proactive and thoughtful management by their dealers to maintain the relationship, identify their wants and needs and move them into the most appropriate new vehicle on the showroom floor.

In 2019, new consumers, new product mixes and a new competitive landscape mean dealers have to take a new look at how they efficiently identify, sell to, service and retain the customers upon whom their success depends. The industry’s not standing still, and neither can you.

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