Sales numbers are ticking up for many dealers, quelling fears of a slow market rebound. The pandemic, however, is not over yet. In this article, we examine some of the threats to the auto industry’s recovery, as revealed by IHS Markit. By understanding the challenges facing the industry, dealers can make smart marketing choices that keep sales on the rise.
Recovery in 2008 vs. 2020
The auto industry experienced its last major disruption in 2008. While some have compared the 2020 crisis to the Great Recession, much has changed over the last 12 years. This means that there are different challenges for the industry to navigate, and today’s disruption requires a different recovery strategy.
“Cash for Clunkers”: As Corporate Average Fuel Economy (CAFE) standards continued to rise, fuel-economy levels among the industry improved, resulting in a market that has clearly adapted to current trends. Unless the government is willing to institute a used-to-new trade-in incentive program, regardless of mpg and age limits, the automotive industry will be missing a key stimulus program to boost vehicle sales as it heads into the economic downturn (IHS Markit / Automotive News).
Room for growth: Auto sales were already forecast to decline during a time when the economy was stable. Now with production slowed due to shutdowns, and the economy headed toward a recession, the retail sales potential will only diminish. Automakers will need aggressive sales and incentive strategies to maintain market share, which could lead to a trickle-down effect that may further weaken the market (IHS Markit / Automotive News).
Demand for crossovers: As a primary driver for sales growth during the last few years, the industry has placed a heavy emphasis on producing more crossovers, overtaking sedans as the majority body type in the market. With industry sales expected to decline even further than the previously forecast level of under 17 million units, it may be difficult to rely on this pipeline in the future, owing to their high MSRPs and a consumer base that is more price-sensitive entering a period of financial uncertainty (IHS Markit / Automotive News).
Leasing and the growing used supply: As lease penetration continues to remain at an all-time high, the used supply will continue to grow, hurting resale values and lowering residual values, making it difficult to offer a competitive lease payment. In addition to the challenges facing lease payments, the rise in used supply, and subsequent decline in resale values, could shift demand away from the new market as consumers become more price conscious (IHS Markit / Automotive News).
How Customer Retention and Marketing Affect Recovery
To navigate the recovery, OEMs and dealers will need to keep customers loyal. In marketing terms, the best ways to reach your current customer base are through direct mail, service drives, and email campaigns. Direct mail is especially advantageous right now, as many consumers are still spending more time at home and in front of digital screens. Mailpieces stand out and demonstrate an extra effort on the part of the dealer.