Increased new car prices propel used car sales to new heights

This year alone, the used car industry has taken over in terms of profit and sales. And it would be disingenuous to say it isn’t at least partially due to the tariffs imposed by the U.S. on China, Mexico, Canada, and the European Union– with tariffs of 25% on steel and 10% on aluminum. So, while automobile manufacturers and new car dealerships are beginning to take a hit, the used car industry’s growth in sales are predicted to continue in an upward trend.

2018 has been a record-breaking year for used car sales according to CNBC’s, Robert Ferris. This isn’t to say there aren’t legitimate concerns for the automobile industry in general, but with price increases on steel and aluminum, there will be a “trickle-down-effect” where increased manufacturing costs result in increased prices for both new and used vehicles.

While the industry is still doing well in spite of the tariffs, there are anxieties among new car dealerships and manufacturers due to increased manufacturing costs. The new manufacturing costs mean new car dealerships will have to buy and sell vehicles at a higher price. So, even if people are selling their vehicles to used car dealerships at a slightly higher price, the used car industry is making a huge profit as the cheaper option– avoiding the expenses manufacturers and new dealerships have to take on while also selling vehicles at a higher valuation.

According to the International Trade Administration and Washington Post’s, Heather Long, 79% of all steel and 90% of all aluminum are imported to the United States from foreign countries. Even vehicle brands commonly purchased in the U.S. such as Nissan, Honda, and Toyota are typically manufactured in either Canada or Mexico and then shipped into the United States. This means any vehicles imported into the U.S. with the current tariffs cost more in comparison to domestically manufactured vehicles– and domestic companies such as Ford, Jeep, and Chevrolet still use imported materials and parts to construct their cars.

In essence, the tariffs are bad for manufacturers and new car dealerships, but great for used car dealerships. This is due to the increased costs limiting consumer options and forcing them into purchasing specific vehicles or pursuing the used vehicle route. And according to Forbes Magazine’s automotive journalist, Jim Gorzelany, estimated increases on new vehicle costs based on current MSRPs will look something like this:

Even prior to the current tariffs, used car dealerships have been dominating the automobile sales market– with 39 to 40 million used cars sold every year. Most of the technology in used vehicles is the same as in new ones, but offered at a lower price. So, the incentive to consider a used vehicle greatly outweighs the purchase of a new car for most American consumers. According to CNBC’s, Ferris, crossovers and sports utility vehicles are the most popular purchases, and consumers will hold out until a used option is available. So, with tariffs thrown into the fray, manufacturers and new car dealerships must prepare to receive less business because consumers are finding used cars as the more attractive option.

AMT is committed to helping dealerships understand and control used car reconditioning for optimal results. As the market for used vehicles becomes more active, getting your inventory frontline ready with minimal holding costs is crucial for your operation. We can help.

Sources:

https://www.cnbc.com/2018/07/06/tariffs-could-send-american-car-buyers-into-the-used-market.html

https://www.forbes.com/sites/jimgorzelany/2018/07/05/heres-how-much-trump-tariffs-could-boost-prices-on-the-top-selling-models-in-the-u-s/#30ab4c127ec1

https://www.trade.gov/steel/countries/pdfs/imports-us.pdf

https://www.washingtonpost.com/news/wonk/wp/2018/03/01/foreign-suppliers-are-flooding-the-u-s-aluminum-market/?utm_term=.41a5fe3869f2

As consumers, every day we see the changes the Internet has brought into our lives. It has affected the way we live, work, shop, play, communicate and so much more. As marketers, and more importantly marketers for dealerships, the Internet has affected change in more areas than one. We’ve seen changes in how brands identify themselves online, market themselves, and maintain relationships with their audiences. In today’s electronic world, dealerships are finding it harder than ever stay connected to and market to their audience. So much of the car buying process takes place online early in the buyer’s journey.

The Internet has influenced the way car buyers research for cars based on their needs without contacting dealerships or salespeople first. As we move further into our “year of growth,” let’s talk about advertising for dealerships. Specifically, using banner ads and knowing the best ways to maximize them for lead conversions. Banner ads are always evolving and can be changed and enhanced to fit the approach of an auto dealership’s marketing strategy.

Why Banner Ads are Effective

Banner ads not only for specials and sales but also for inventory are efficient and effective when used correctly. Banner ads make it possible to reach a targeted audience no matter the social media outlet, online page, or device.

There are many reasons why dealerships should choose this style of display advertising. One reason is that banner ads are great for reaching an audience in a specific part of their buyer’s journey. For example, if someone is starting to research sporty cars, a banner or inventory ad relating to brands of sports cars at your dealership would make more impact than an ad offering a discount sale. Waiting to push an ad until buyers search for a specific keyword could force you to miss your window of opportunity. When you target to a specific stage in their journey based on likes, dislikes, search history and location, you can reap the benefits of more traffic and visibility for your business.

Banner ads also work because they are incredibly easy to track. One of the only ways dealership marketers can improve a digital marketing strategy is by tracking the success of different ad campaigns. Using banner ads, they can track which ads users are clicking on and responding to.

Why Banner Ads Get a Bad Rap

Though choosing display advertisements is a great decision for dealerships to obtain a higher conversion rate, there are some obstacles to overcome. Before dealerships can maximize their banner ads, it is important to know that three of the most common issues faced by banner ads are blindness, a competitive market, and blockers. 

Now, when we mention blindness, we don’t actually mean people who can’t physically see. Often, what happens when users spend a great deal of time surfing the web or scrolling through social media, they become accustomed to the environment. This is referred to as banner ad blindness. Think about your own experiences online. How often do you really pay attention to ads that pop up or work themselves into the natural scroll of whatever platform you’re on? You become so used to seeing ads in every area of your life, they start to blend in. It is also easy to miss an ad if it isn’t targeted to what you’re looking for. If someone is searching for new sneakers and an ad for a new car pops up, they likely aren’t going to notice it or care it is there.

Another reason dealership marketers are afraid of using banner ads is due to the highly competitive market. According to DealerOps, the average marketing expenditure is nearly $500,000 per dealership with digital marketing leading the way in advertising. More and more dealerships are spending larger portions of their marketing budget on display advertising. This is flooding the marketing with ads everywhere. And depending on different budgets, a competitor’s ads might be more visible. Regardless of budget, the key is measuring your ads’ effectiveness, and optimizing.

That being said, there are opportunities to target your audience directly that help when competing against bigger budgets. You can target ads based on demographics, geography, interests, and recent behaviors. By targeting ads this specifically, you increase the chance of reaching a designated audience more easily than a broad ad that has been paid for. Facebook and many online plugins offer you the ability to customize your target options to efficiently target specific groups of people. 

The final obstacle facing banner ads effects all dealerships equally no matter how much money is spent. We’re talking about ad blockers. There isn’t much one can do when users have an ad blocking extension installed on their browsers. The best option for dealerships is to locally target their audience and focus on optimizing their banner ad to be as successful as possible. Here is how you do it:

How to Maximize Banner Ads for Conversions

Not all banner ads are created equally. They must be meeting the right market at the right times with the right content in order to improve clicks and conversions. Below are some of the best ways dealerships can maximize their ads.

• Design - The first step in maximizing banner ads is to use relevant content, images, and colors where appropriate. Dealerships should strive for their ads to be eye-catching but not gaudy. Creating templates is a great way to test out different fonts, color, images and sizing for different ads. They are also extremely useful when figuring out the placement and sizing of the ad based on where it will be found on a page. 

  Using live images, video, and animation are also a great way to enhance the design outcomes of a dealership ad and combat ad blindness. If using these features, however, it is vital that appropriate calls-to-actions (CTAs) are listed at the correct times/sections. This is especially true when using video and animation. Be sure to watch all related content to the end and evaluate whether the CTA is appropriate and makes sense to the audience.

• Optimize for Mobile - According to Smart Insights, 80 percent of internet users own a smartphone. Nearly half of consumers also start any type of research on a mobile device using a search engine like Google. These users are spending nearly four hours a day searching the Internet. With this rapid increase of Internet users on mobile devices, it makes perfect sense to start optimizing ads for mobile. Use ads that offer immediate downloadable or linkable features. Mobile users appreciate clean transitions with just a few clicks - instant gratification is huge. It’s also wise to target the younger generation of car buyers. More millennials use platforms like Facebook and Twitter on mobile devices than other generations.

• Retarget Consumers with Inventory, Not Just Offers -  Stop retargeting everyone that comes to your site with general offers. Instead, offer inventory. When you only display special offers, you are treating every visitor the same. But everyone has different wants and needs. Offers are great when trying to pique new interest in someone, but very rarely do they end with the results dealerships are looking for. If a visitor researches a specific car like a Ford F-150, any ads targeted toward them should be related to Ford F-150s or similar vehicles. This is all part of the inbound marketing strategy to reach audiences during their buyer’s journey. Once their need has been specified, a relevant ad will increase the chance to close a sale.

• Provide Clear Direction -  Probably one of the best ways for a dealership to optimize their banner ads is to be as clear and concise as possible not only with the content of their ads, but what happens after an ad is clicked. Whether the main purpose of an ad is to sell a specific car, schedule an appointment, or target a lead, when a user clicks on that ad, they absolutely need to be taken to the corresponding landing page. An ad should never link directly to the homepage of a dealership’s website because it doesn’t take the visitor where he or she was initially asking to be taken. If they researched a Honda Civic and you provided a targeted Honda Civic ad, then when that ad is clicked it needs to take the user to a page with information about that car. All landing pages should be simple yet feature information with attention-grabbing headlines, images of corresponding vehicles, and clear calls-to-action. 

Analyzing for the Future

The only way to maximize results and continue constant growth is by learning from mistakes and moving forward. When looking at previous ad campaigns, weaknesses will be revealed. This provides you with the information to remedy those weaknesses. Look at the ad’s impressions. This will tell you how many people simply saw your ad. Click through rates (CTRs) and engagement rates will also tell you which types of banner ads are most successful. CTRs will tell you how many people clicked on your ad. Engagement rates are great for seeing who is scrolling through or sharing your ads but might not make it to your site. The most important number will be your conversion. Conversions are the whole reason you set out with an ad campaign. These will tell you how many people made it to your site and filled out a form with their contact information to either download a deliverable, schedule an appointment, or contact you directly.

Whether you are a marketing manager or the owner of a car dealership, knowing how to reach the right audience at the right time with your optimized banner ads is going to help land new leads and close sales with potential clients. Stay up-to-date on design trends for your industry. Take a look at successful competitor display advertisements. See how they organize and display their images and texts. Are they just displaying ads with special offers? Or are they including inventory advertisements? Pay attention to the younger generation using their mobile phones for everything. If there are young parents out there searching for safer, more fuel-efficient cars, target ads specifically to them. Make sure all the features in your ad and website are clear and functional. All of these tools together create the perfect storm for maximizing your banner ads. In no time, your dealership will be seeing a higher success rate with how their banner ads attract visitors, ultimately producing qualified leads.

Over the last few years, there has been a huge push from manufacturers for subscription-based vehicle services. Now, more dealerships have started providing the same services for their customers. The idea that consumers can now pay a monthly fee for access to any vehicle of their choice with the costs of insurance, service, and maintenance included, is becoming a popular choice among drivers. As more news about this service comes to light, more questions about the future of used car dealerships also arise.

In a modern world where convenience is everything, are the years of buying a new car over? Maybe.

Why Consumers are Choosing Subscription Plans

The idea of car subscription services is not new. Many luxury brands have even started to launch subscription services in more urban areas. The process is identical to leasing plans and targets younger drivers favoring function and flexibility over convention. An all-inclusive payment may be more suitable for younger drivers more inclined to rent or lease products compared to committing to a large purchase.

One highlight of the subscription plan is that it is entirely need-based. If someone typically drives a compact car throughout the week for day-to-day errands, they are set for a while. But, if they enjoy going camping or hiking on the weekends and require a larger SUV to pull a boat or carry extra luggage, the subscription service can provide that change. While a subscription service seems like the ideal transportation option to consumers with various wants, a greater point of confusion surrounds what happens to the cars? And how does this service different from any other car leasing service? Well, the answer to the latter is, it doesn’t. Dealerships and manufacturers have simply caught on to the successful business processes set in place by rental companies like Enterprise where anyone can rent any car they want at any time (within reason).

Why is this Important?

As for what happens to the cars, the answer is not so cut and dry. The rules for who holds the title to a car depends on individual state laws. In most cases, the vehicle is typically titled to the driver. With the subscription services, the best option would be for the manufacturer or dealership to keep the title. This method can get even trickier when it comes to insurance.

When there is a crash or damage caused by the driver or someone else, who does insurance cover? Ideally, the point of contact for insurance companies would be with the dealership supplying the subscription vehicle. One thing insurance companies must be doing with these deals is covering individual drivers through a unique plan or understanding of the subscriptions. Any damage or services needed would need to be covered by the manufacturers and dealerships who own the car. Drivers can simply return a damaged car and pick out a new one from the supplied fleet of cars. The dealerships would then be consistently turning out used car after used car. And if that is the case, why would driver no longer simply purchase a used car to be repaired when needed or stick with rental companies who provide a similar service?

How can these Subscription Plans Change Dealership Processes?

More states are beginning to ban subscriptions services due to the possibilities of recalls and overuse. Dealerships and rental companies now are not allowed to lease or sell cars with recalls and it’s doubtful manufacturers or companies with subscriptions plans will be exempt from these laws.

But how can dealerships maintain an idea that switching cars is cool? While the initial sale of the subscriptions is appealing – the flexibility, convenience, potential savings –, consumers are never receiving a new car. There are typically also restrictions applied to how consumers can use the car such as no pets allowed inside or a limit to how far you can drive. Some of the cars swapped out in a fleet can be driven for a few weeks around a small town, or some can be taken on longer, more intense trips. But what can dealerships do with the cars needing repair with a demand for constant swapping? Dealership subscriptions will need a fast way to triage and doctor cars coming into fleets after being swapped out.

One of the best tools for dealerships to cope with an influx of these used cars is with reconditioning management software such as ReconMonitor. ReconMonitor’s state-of-the-art workflow automation changes the game for dealerships when it comes to auto reconditioning. The software can cut reconditioning cycle time down significantly to get those cars back out on the lot faster. This system also helps control vendor costs and execute auto remarketing quickly, tracking tasks and orders to maintain high levels of efficiency. Technicians at a dealership can use the software to scan the VIN number of a freshly swapped, damaged vehicle and begin managing the details of needed service. This is extremely helpful for smaller dealerships just starting out with smaller fleets in need of faster turnaround times to keep up with consumer trade-outs.

The Future of Car Subscription Plans

There are a growing number of well-known carmakers offering some sort of leasing or subscription plan to their customers. Brands including Cadillac, Ford, and Porsche offer these services in locations such as Dallas, New York, and California, but none of the services are offered nationwide. The only carmaker to launch the subscription service nationwide is Volvo. The “Care by Volvo” is available to consumers and will feature the 2019 Volvo XC40. One interesting outlet to watch for subscription services is the number of growing startups launching their own plans. Several startup companies are beginning to offer subscription plans for deals with a number of different car makers, providing a higher level of variety for consumers wishing to try different brands.

While subscription plans appear to be a promising addition to the auto industry, it is going to take time before dealerships start seeing concrete advantages. Currently, subscription services only take up a minuscule percentage in the auto buying and leasing industry. However, the more dealerships and manufacturers offer these types of services, the easier it will be to track consumer behavior and figure out the prime audience. With the knowledge of software like ReconMonitor and understanding of how future generations will use cars, dealerships could see an increase in new revenue streams and find new ways of providing viable transportation options.